Income Taxes

12 Months Ended

Jan. 28, 2023

Income Taxes

Income Taxes

Note 10. 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
	2022		2021		2020
Earnings (loss) before income taxes:
Domestic	$	206,944	$	161,233	$	(129,129)
Foreign		8,781		3,326		3,252
Earnings (loss) before income taxes	$	215,725	$	164,559	$	(125,877)
Income taxes:
Current:
Federal	$	41,776	$	24,998	$	(11,498)
State		8,835		3,780		(1,060)
Foreign		1,191		409		735
		51,802		29,187		(11,823)
Deferred—Domestic		71		4,155		(17,780)
Deferred—Foreign		(1,883)		(104)		(582)
Income taxes	$	49,990	$	33,238	$	(30,185)

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

	Fiscal		Fiscal		Fiscal
	2022		2021		2020
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State income taxes—net of federal income tax benefit	3.6	%	3.7	%	3.6	%
Impact of foreign operations rate differential	0.1	%	0.1	%	(0.2)	%
Impairment of non-deductible Southern Tide goodwill	—	%	—	%	(3.7)	%
Change in reserve for uncertain tax positions	0.2	%	(1.0)	%	(2.5)	%
Rate benefit from NOL carry-back to pre-U.S. Tax Reform periods due to the CARES Act	—	%	—	%	5.5	%
Impact of valuation allowances related to operating losses	(1.6)	%	(0.8)	%	(0.9)	%
Impact of valuation allowances related to capital losses	—	%	1.2	%	—	%
Impact of capital losses	—	%	(2.9)	%	—	%
Other, net	(0.1)	%	(1.1)	%	1.2	%
Effective tax rate for continuing operations	23.2	%	20.2	%	24.0	%

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

	January 28,		January 29,
	2023		2022
Deferred Tax Assets:
Inventories	$	20,561	$	16,947
Accrued compensation and benefits		9,637		9,058
Receivable allowances and reserves		2,580		2,814
Operating lease liabilities		71,871		59,711
Operating loss and other carry-forwards		757		3,675
Other, net		4,901		3,529
Deferred tax assets		110,307		95,734
Deferred Tax Liabilities:
Operating lease assets		(66,145)		(51,909)
Depreciation and amortization		(15,289)		(12,427)
Acquired intangible assets		(26,030)		(26,792)
Deferred tax liabilities		(107,464)		(91,128)
Valuation allowance		(2,448)		(6,050)
Net deferred tax asset (liability)	$	395	$	(1,444)

The majority of our valuation allowance of $2 million as of January 28, 2023 relate to our capital loss carry-forwards. As of January 29, 2022, the majority of our valuation allowance of $6 million related to operating loss carry-forwards and deferred tax assets in the jurisdictions with operating losses as well as our capital loss carry-forwards. The positive operating results in Fiscal 2022, as well as the positive net earnings in the most recent three-year cumulative period, are considered significant positive evidence about the realizability of our operating loss carry-forwards in certain jurisdictions, and in Fiscal 2022 resulted in the utilization or reversal of the substantial majority of our valuation allowances related to our operating loss carry-forward amounts. The short carry-forward period for the capital losses, which can only offset qualifying capital gain income, continue to be considered significant negative evidence against the future realizability of these capital loss 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.

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 substantially all of our 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 these foreign investments and earnings in our consolidated balance sheets as of January 28, 2023 and January 29, 2022.

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 28,		January 29,
	2023		2022
Assets:
Deferred tax assets	$	3,376	$	1,467
Liabilities:
Deferred tax liabilities		(2,981)		(2,911)
Net deferred tax asset (liability)	$	395	$	(1,444)

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 2022		Fiscal 2021		Fiscal 2020
Balance of unrecognized tax benefits at beginning of year	$	3,390	$	5,261	$	1,212
Increase related to prior period tax positions		110		10		303
Decrease related to prior period tax positions		—		—		(1)
Increase related to current period tax positions		646		527		3,960
Decrease related to settlements with taxing authorities		—		(2,305)		—
Decrease related to lapse of statute of limitations		(482)		(103)		(213)
Balance of unrecognized tax benefits at end of year	$	3,664	$	3,390	$	5,261

Approximately $1 million of our uncertain tax positions as of January 28, 2023, 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 the gross unrecognized tax benefits may decrease during Fiscal 2023. However, the ultimate occurrence, outcomes, and timing of such events could differ from our current expectations. Interest and penalties associated with unrecognized tax positions are recorded within income tax expense in our consolidated statements of operations. During each of Fiscal 2022, Fiscal 2021 and Fiscal 2020, we recognized less than $1 million of interest and penalties associated with unrecognized tax positions in our consolidated statements of operations.