Income Taxes

12 Months Ended

Jan. 30, 2021

Income Taxes

Income Taxes

Note 9. Income Taxes

The following table summarizes our distribution between domestic and foreign earnings (loss) before income taxes and the provision (benefit) for income taxes (in thousands):

	Fiscal		Fiscal		Fiscal
	2020		2019		2018
Earnings from continuing operations before income taxes:
Domestic	$	(129,129)	$	86,528	$	85,050
Foreign		3,252		5,902		3,259
Earnings from continuing operations before income taxes	$	(125,877)	$	92,430	$	88,309
Income taxes:
Current:
Federal	$	(11,498)	$	18,565	$	12,543
State		(1,060)		5,459		4,474
Foreign		735		1,650		1,979
		(11,823)		25,674		18,996
Deferred—Domestic		(17,780)		(1,870)		3,141
Deferred—Foreign		(582)		133		(119)
Income taxes	$	(30,185)	$	23,937	$	22,018

Reconciliations of the United States federal statutory income tax rates and our effective tax rates are summarized as follows:

	Fiscal		Fiscal		Fiscal
	2020		2019		2018
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State income taxes—net of federal income tax benefit	3.6	%	4.4	%	4.6	%
Impact of foreign operations rate differential	(0.2)	%	0.2	%	0.7	%
Impairment of non-deductible Southern Tide goodwill	(3.7)	%	—	%	—	%
Change in reserve for uncertain tax positions	(2.5)	%	—	%	—	%
Rate benefit from NOL carryback to pre-U.S. Tax Reform periods due to the CARES Act	5.5	%	—	%	—	%
Other, net	0.3	%	0.3	%	(1.4)	%
Effective tax rate for continuing operations	24.0	%	25.9	%	24.9	%

Deferred tax assets and liabilities included in our consolidated balance sheets are comprised of the following (in thousands):

	January 30,		February 1,
	2021		2020
Deferred Tax Assets:
Inventories	$	16,338	$	13,067
Accrued compensation and benefits		8,759		8,977
Receivable allowances and reserves		2,109		993
Operating lease liabilities		73,917		85,969
Operating loss and other carry-forwards		4,617		3,171
Other, net		3,686		1,546
Deferred tax assets		109,426		113,723
Deferred Tax Liabilities:
Operating lease assets		(66,341)		(82,186)
Depreciation and amortization		(9,682)		(8,076)
Acquired intangible assets		(25,047)		(34,019)
Deferred tax liabilities		(101,070)		(124,281)
Valuation allowance		(5,668)		(5,213)
Net deferred tax asset (liability)	$	2,688	$	(15,771)

As of January 30, 2021 and February 1, 2020, our operating loss and other carry-forwards primarily relate to our operations in Canada and Hong Kong, as well as certain states. The majority of these operating loss carry-forwards allow for carry-forward of at least 20 years and in some cases, indefinitely. The substantial majority of our valuation allowance of $6 million and $5 million as of January 30, 2021 and February 1, 2020, respectively, relates to these foreign and state operating loss carry-forwards and the deferred tax assets in those jurisdictions. The recent history of operating losses in certain jurisdictions is considered significant negative evidence against the future realizability of these tax benefits. The amount of the valuation allowance could change in the future if our operating results or estimates of future taxable operating results changes.

U.S. Tax Reform made significant changes to how foreign earnings are taxed. Certain amounts of foreign earnings are subject to U.S. federal tax currently pursuant to the GILTI rules regardless of whether those earnings are distributed, and actual distributions of foreign earnings are generally no longer subject to U.S. federal tax. We continue to assert that our investments in foreign subsidiaries and substantially all of the related earnings are permanently reinvested outside the United States. We believe that any other taxes such as foreign withholding or U.S. state tax payable would be immaterial if we were to repatriate the foreign earnings. Therefore, we have not recorded any deferred

tax liabilities related to investments and earnings in our consolidated balance sheets as of January 30, 2021 and February 1, 2020.

Accounting for income taxes requires that we offset deferred tax liabilities and assets within each tax jurisdiction and present the net deferred tax amount for each jurisdiction as a net deferred tax amount in our consolidated balance sheets. The amounts of deferred income taxes included in our consolidated balance sheets are as follows (in thousands):

	January 30,		February 1,
	2021		2020
Assets:
Deferred tax assets	$	2,688	$	769
Liabilities:
Deferred tax liabilities		—		(16,540)
Net deferred tax asset (liability)	$	2,688	$	(15,771)

A reconciliation of the changes in the gross amount of unrecognized tax benefits, which are included in other non-current liabilities, is as follows (in thousands):

	Fiscal 2020		Fiscal 2019		Fiscal 2018
Balance of unrecognized tax benefits at beginning of year	$	1,212	$	975	$	335
Increase related to prior period tax positions		303		—		206
Decrease related to prior period tax positions		(1)		(27)		—
Increase related to current period tax positions		3,960		287		440
Decrease related to settlements with taxing authorities		—		—		—
Decrease related to lapse of statute of limitations		(213)		(23)		(6)
Balance of unrecognized tax benefits at end of year	$	5,261	$	1,212	$	975

Substantially all of our uncertain tax positions as of January 30, 2021, if recognized, would reduce the future effective tax rate in the period settled. The total amount of unrecognized tax benefits relating to our tax positions is subject to change based on future events including, but not limited to, settlements of ongoing audits and assessments and the expiration of applicable statutes of limitation. We expect that the balance of gross unrecognized tax benefits will decrease by approximately $3 million during Fiscal 2021. However, changes in the expected occurrence, outcomes, and timing of such events could cause our current estimate to change materially in the future. Interest and penalties associated with unrecognized tax positions are recorded within income tax expense in our consolidated statements of operations. During each of Fiscal 2020, Fiscal 2019 and Fiscal 2018, we recognized less than $1 million of interest and penalties associated with unrecognized tax positions in our consolidated statements of operations.