Income Taxes

12 Months Ended

Jan. 29, 2022

Income Tax Disclosure [Abstract]

Income Taxes

F. INCOME TAXES

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. Under ASC Topic 740, deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The accounting standards require current recognition of net deferred tax assets to the extent it is more likely than not such net assets will be realized. To the extent that the Company believes its net deferred tax assets will not be realized, a valuation allowance must be recorded against those assets.

At the end of fiscal 2013, the Company entered a three-year cumulative loss and based on all positive and negative evidence at February 1, 2014, the Company established a full valuation allowance against its net deferred tax assets. While the Company returned to profitability in fiscal 2021, until the Company emerges from its three-year cumulative loss and is able to demonstrate consistent and prolonged profitability, the Company believes that a full allowance remains appropriate at this time. Realization of the Company’s deferred tax assets is dependent on generating sufficient taxable income in the near term.

As of January 29, 2022, for federal income tax purposes, the Company has net operating loss carryforwards of $100.7 million, which will expire from fiscal 2028 through fiscal 2037 and net operating loss carryforwards of $43.1 million that are not subject to expiration. For state income tax purposes, the Company has $90.0 million of net operating losses that are available to offset future taxable income, the majority of which will expire from fiscal 2028 through fiscal 2041. Additionally, the Company has $5.3 million of net operating loss carryforwards related to the Company’s operations in Canada, which will expire from fiscal 2025 through fiscal 2041.

The utilization of net operating loss carryforwards and the realization of tax benefits in future years depends predominantly upon having taxable income. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carryforwards and tax credit carryforwards, which may be used in future years. As of January 29, 2022, there has been no such ownership change.

The components of the net deferred tax assets as of January 29, 2022 and January 30, 2021 were as follows (in thousands):

	January 29, 2022			January 30, 2021
Deferred tax assets, net:
Net operating loss carryforward	$	36,790		$	50,197
Accrued expenses and other		5,223			2,706
Operating lease liabilities		40,301			45,557
Goodwill and intangibles		11			87
Unrecognized loss on pension and pension expense		1,883			2,067
Inventory reserves		1,054			1,002
Foreign tax credit carryforward		486			486
Federal wage tax credit carryforward		824			824
State tax credits		147			147
Operating lease right-of-use assets		(33,103	)		(34,365	)
Property and equipment		(3,597	)		(5,605	)
Subtotal	$	50,019		$	63,103
Valuation allowance		(50,019	)		(63,103	)
Net deferred tax assets	$	—		$	—

For fiscal 2021, the Company had total deferred tax assets of $86.7 million, total deferred tax liabilities of $36.7 million and a valuation allowance of $50.0 million.

The provision for income taxes consisted of the following:

	FISCAL YEARS ENDED
	January 29, 2022		January 30, 2021		February 1, 2020
(in thousands)
Current:
Federal	$	—	$	—	$	—
State		912		99		97
Foreign		5		7		8
		917		106		105
Deferred:
Federal		—		—		—
State		—		—		—
Foreign		—		—		—
		—		—		—
Total provision	$	917	$	106	$	105

The following is a reconciliation between the statutory and effective income tax rates in dollars for the provision for income tax:

	FISCAL YEARS ENDED
	January 29, 2022			January 30, 2021			February 1, 2020
(in thousands)
Federal income tax at the statutory rate	$	12,102		$	(13,531	)	$	(1,615	)
State taxes, net of federal tax benefit		721			78			77
Section 162(m) limitation		1,375			197			541
Permanent items		(893	)		245			277
Change in valuation allowance (1)		(12,421	)		13,167			850
Other, net		33			(50	)		(25	)
Total provision	$	917		$	106		$	105

(1)The change in valuation allowance excludes the amounts allocable to state income tax, which is presented in State taxes, net of federal tax benefit, and other comprehensive income. The change in valuation allowance in fiscal 2019 was impacted by the adoption of ASC 842 in the tax-effected amount of $1.4 million.

As discussed in Note A, the Company’s financial statements reflect the expected future tax consequences of uncertain tax positions that the Company has taken or expects to take on a tax return, based solely on the technical merits of the tax position. The liability for unrecognized tax benefits at January 29, 2022 and January 30, 2021 was approximately $2.0 million and was associated with a prior tax position related to exiting the Company’s direct business in Europe during fiscal 2013. The amount of unrecognized tax benefits has been presented as a reduction in the reported amounts of the Company’s federal and state net operating losses carryforwards. No penalties or interest have been accrued on this liability because the carryforwards have not yet been utilized. The reversal of this liability would result in a tax benefit being recognized in the period in which the Company determines the liability is no longer necessary.

For fiscal 2021, the Company made tax payments of $0.6 million, as compared to $0.1 million for both fiscal 2020 and fiscal 2019.