Income Taxes

12 Months Ended

Jan. 28, 2023

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 11: INCOME TAXES

U.S. and foreign components of earnings before income taxes were as follows:

Fiscal year	2022	2021	2020
U.S.	$316	$241	($1,210)
Foreign	21	5	(18)
Earnings (loss) before income taxes	$337	$246	($1,228)

Income tax expense (benefit) consists of the following:

Fiscal year	2022	2021	2020
Current income taxes:
Federal	$149	$61	($501)
State and local	27	18	(34)
Foreign	(1)	—	4
Total current income tax expense (benefit)	175	79	(531)
Deferred income taxes:
Federal	(86)	(10)	47
State and local	(2)	(5)	(57)
Foreign	5	4	3
Total deferred income tax benefit	(83)	(11)	(7)
Total income tax expense (benefit)	$92	$68	($538)

A reconciliation of the statutory federal income tax rate to the effective tax rate on earnings (loss) before income taxes is as follows:

Fiscal year	2022		2021		2020
Statutory rate	21.0	%	21.0	%	21.0	%
CARES Act impact	—		(0.9	%)	17.6	%
State and local income taxes, net of federal income taxes	5.9	%	3.4	%	6.1	%
Federal credits	(3.8	%)	(4.0	%)	0.5	%
Non-deductible expenses	1.2	%	2.7	%	(0.3	%)
Stock-based compensation	1.8	%	2.0	%	(1.0	%)
Valuation allowance	0.4	%	1.8	%	(0.8	%)
Taxes on foreign operations	1.6	%	1.3	%	0.4	%
Other, net	(0.9	%)	0.2	%	0.3	%
Effective tax rate	27.2	%	27.5	%	43.8	%

The components of deferred tax assets and liabilities are as follows:

	January 28, 2023	January 29, 2022
Deferred tax assets:
Lease liabilities	$463	$471
Compensation and benefits accruals	111	133
Sales return reserve	61	59
Accrued expenses	28	27
Merchandise inventories	33	35
Gift cards	43	25
The Nordy Club loyalty program	8	5
Net operating losses	52	81
Other	25	9
Total deferred tax assets	824	845
Valuation allowance	(28)	(28)
Total deferred tax assets, net of valuation allowance	796	817
Deferred tax liabilities:
ROU assets	(331)	(326)
Land, property and equipment	(230)	(327)
Debt exchange premium	(12)	(12)
Total deferred tax liabilities	(573)	(665)
Net deferred tax assets	$223	$152

The following sets forth information on approximate net operating loss carryforwards for income tax purposes:

	January 28, 2023	January 29, 2022
State	$756	$1,114
Foreign	26	50

The net operating loss carryforwards are subject to certain statutory limitations of applicable state and foreign laws. If not utilized, a portion of our state and foreign net operating loss carryforwards will begin to expire in 2024 and 2033.

As of January 28, 2023 and January 29, 2022, we believe there are certain foreign net operating loss carryforwards and deferred tax assets that will not be realized in the foreseeable future. As such, valuation allowances of $28 have been recorded as of January 28, 2023 and January 29, 2022. The valuation allowance had no change in 2022 and increased $4 in 2021.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Fiscal year	2022	2021	2020
Unrecognized tax benefit at beginning of year	$47	$32	$22
Gross increase to tax positions in prior periods	1	11	4
Gross decrease to tax positions in prior periods	(6)	—	—
Gross increase to tax positions in current period	7	6	6
Settlements	(1)	(2)	—
Unrecognized tax benefit at end of year	$48	$47	$32

At the end of 2022 and 2021, $45 and $39 of the ending gross unrecognized tax benefit related to items which, if recognized, would affect the effective tax rate.

There was no material expense for interest and penalties in 2022, 2021 and 2020. At the end of 2022 and 2021, our liability for interest and penalties was $8 and $7.

We file income tax returns in the U.S. and a limited number of foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local, or non-U.S. income tax examinations for years before 2013. As of January 28, 2023, we believe it is reasonably possible unrecognized tax benefits related to federal, state and local tax positions may decrease $30 by February 3, 2024, due to the completion of examinations and the expiration of various statutes of limitations.