Income Taxes

12 Months Ended

Feb. 03, 2024

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.

Until the second quarter of fiscal 2022, the Company had maintained a full valuation allowance against its deferred tax assets since fiscal 2013. During the second quarter of fiscal 2022, the Company determined that it was more likely than not that it would be able to realize the benefit of substantially all of its deferred tax assets in the United States. In reaching this determination, the Company considered the cumulative three years of profitability, its six consecutive quarters of sales growth and profitability at the time of the assessment, its expectations regarding the generation of future taxable income and the ability to utilize the Company’s net operating loss (“NOLs”) carryforwards as well as the overall improvement in the Company's business, brand repositioning and current market position. As a result, for fiscal 2022, the valuation allowance against the Company's deferred tax assets decreased by $47.6 million, of which $31.6 million was recorded as a non-recurring tax benefit in fiscal 2022 related to the release of the valuation allowance on deferred tax assets expected to be realized in future periods. As a result of releasing substantially all of the valuation allowance against its deferred tax assets during fiscal 2022, the Company returned to a normal tax provision for fiscal 2023. At February 3, 2024 and January 28, 2023, the Company continued to provide a valuation allowance of $2.2 million and $2.4 million, respectively, primarily against certain state and foreign NOLs.

As of February 3, 2024, for federal income tax purposes, the Company had net operating loss carryforwards of $3.6 million, which will expire in fiscal 2037 and net operating loss carryforwards of $39.9 million that are not subject to expiration. For state income tax purposes, the Company had $51.8 million of net operating losses that are available to offset future taxable income, the majority of which will expire from fiscal 2024 through fiscal 2045. 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 February 3, 2024, there has been no such ownership change.

The components of the net deferred tax assets as of February 3, 2024 and January 28, 2023 were as follows (in thousands):

	February 3, 2024			January 28, 2023
Deferred tax assets, net:
Net operating loss carryforward	$	13,522		$	21,736
Accrued expenses and other		4,776			5,597
Operating lease liabilities		40,182			37,793
Goodwill and intangibles		(103	)		(62	)
Unrecognized loss on pension and pension expense		—			1,714
Inventory reserves		866			900
Foreign tax credit carryforward		486			486
Federal wage tax credit carryforward		824			824
State tax credits		147			147
Operating lease right-of-use assets		(35,937	)		(32,583	)
Property and equipment		(985	)		(2,672	)
Subtotal	$	23,778		$	33,880
Valuation allowance		(2,245	)		(2,425	)
Net deferred tax assets	$	21,533		$	31,455

For fiscal 2023, the Company had total deferred tax assets of $60.8 million, total deferred tax liabilities of $37.0 million and a valuation allowance of $2.2 million.

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

	FISCAL YEARS ENDED
	February 3, 2024		January 28, 2023			January 29, 2022
(in thousands)
Current:
Federal	$	—	$	—		$	—
State		1,200		830			912
Foreign		8		6			5
		1,208		836			917
Deferred:
Federal		7,911		(24,794	)		—
State		1,418		(6,830	)		—
Foreign		—		—			—
		9,329		(31,624	)		—
Total provision (benefit)	$	10,537	$	(30,788	)	$	917

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

	FISCAL YEARS ENDED
	February 3, 2024			January 28, 2023			January 29, 2022
(in thousands)
Federal income tax at the statutory rate	$	8,086		$	12,250		$	12,102
State taxes, net of federal tax benefit		1,000			656			721
State deferred taxes, net of federal benefit		1,418			1,558			—
Section 162(m) limitation		746			1,451			1,375
Permanent items		(199	)		(1,002	)		(893	)
Taxes stranded in OCI released with termination of retirement plans		890			—			—
Change in valuation allowance (1)		(179	)		(47,594	)		(12,421	)
Adjustment to §382 NOLs		(1,159	)		1,159			—
Other, net		(66	)		734			33
Total provision (benefit)	$	10,537		$	(30,788	)	$	917

(1)The change in the valuation allowance at January 28, 2023 included a non-recurring income tax benefit of $31.6 million in connection with the Company’s substantial release of the valuation allowance in fiscal 2022 related to the deferred tax assets expected to be realized in future periods.

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 following table shows the liability for unrecognized tax benefits that were 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 was presented as a reduction in the reported amounts of the Company’s federal and state net operating losses carryforwards. No penalties or interest were accrued on this liability. In fiscal 2023, the Company changed this position in its tax return and determined that the liability was no longer necessary.

	FISCAL YEARS ENDED
	February 3, 2024			January 28, 2023		January 29, 2022
(in thousands)
Balance at the beginning of the fiscal year	$	2,000		$	2,000	$	2,000
Changes due to tax positions from current year		—			—		—
Changes due to tax positions from prior years		(2,000	)		—		—
Changes due to lapsing of statute of limitations		—			—		—
Balance at the end of the fiscal year	$	—		$	2,000	$	2,000

The Company made tax payments of $1.6 million, $0.5 million, and $0.6 million for fiscal 2023, fiscal 2022, and fiscal 2021, respectively.

The Inflation Reduction Act of 2022, which was signed into law in 2022, contains a provision that includes a 1% excise tax on certain stock buybacks after December 31, 2022. At February 3, 2024, the Company has accrued $0.2 million for excise taxes payable.