Income Taxes

12 Months Ended

Feb. 03, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Note 8 – Income Taxes

The provision for income taxes consisted of:

(In thousands)	2017			2016			2015
Current:
Federal	$	14,579		$	13,366		$	18,366
State		2,241			1,997			2,267
Puerto Rico		242			250			249
Total current		17,062			15,613			20,882
Deferred:
Federal		2,383			(153	)		(3,000	)
State		(965	)		(1,228	)		(145	)
Puerto Rico		2,500			(1,494	)		(318	)
Total deferred		3,918			(2,875	)		(3,463	)
Valuation allowance		(2,500	)		1,494			318
Total provision	$	18,480		$	14,232		$	17,737

We realized expense of $17,800 in fiscal year 2017 and a tax benefit of $2,900 and $120,000 in fiscal years 2016 and 2015, respectively, as a result of the exercise of stock options and the vesting of restricted stock. These amounts were recorded in income in fiscal 2017 and shareholder’s equity in fiscal 2016 and fiscal 2015 due to changes in the guidance for accounting for share-based compensation arrangements.

Reconciliation between the statutory federal income tax rate and the effective income tax rate is as follows:

Fiscal years	2017			2016			2015
U.S. Federal statutory tax rate		33.7	%		35.0	%		35.0	%
State and local income taxes, net of federal tax benefit		3.0			2.1			2.7
Puerto Rico		0.7			0.2			0.3
Valuation allowance		(6.7	)		4.0			0.7
Tax benefit of foreign losses		6.3			(3.6	)		(0.6	)
Remeasurement of deferred tax assets and liabilities due to the Tax Act		11.6			0.0			0.0
Other		0.8			0.0			0.0
Effective income tax rate		49.4	%		37.7	%		38.1	%

We recorded $223,000, $224,000 and $327,000 in federal employment related tax credits in fiscal 2017, 2016 and 2015, respectively.

Deferred income taxes are the result of temporary differences in the recognition of revenue and expense for tax and financial reporting purposes. The sources of these differences and the tax effect of each are as follows:

(In thousands)	February 3, 2018			January 28, 2017
Deferred tax assets:
Accrued rent	$	2,464		$	4,333
Accrued compensation		5,752			8,552
Accrued employee benefits		349			555
Inventory		699			1,125
Self-insurance reserves		518			758
Lease incentives		7,145			11,996
Net operating loss carry forward		1,218			3,719
Other		488			638
Total deferred tax assets		18,633			31,676
Valuation allowance		(1,217	)		(3,717	)
Total deferred tax assets – net of valuation allowance		17,416			27,959
Deferred tax liabilities:
Property and equipment		8,588			17,256
Capitalized costs		646			1,103
Total deferred tax liabilities		9,234			18,359
Long-term deferred income taxes, net	$	8,182		$	9,600

At the end of fiscal 2017, we estimated foreign net operating loss carry forwards of $3.2 million, which expire between fiscal 2023 and fiscal 2026. At February 3, 2018, we had a valuation allowance of $1.2 million against these net operating losses that would be realizable only upon the generation of future taxable income in the jurisdiction in which the losses were incurred.

At February 3, 2018, January 28, 2017 and January 30, 2016, there were no unrecognized tax liabilities or related accrued penalties or interest in Other liabilities on the Consolidated Balance Sheets.

On December 22, 2017, the U.S. government enacted the Tax Act, which made significant changes to the Internal Revenue Code of 1986, as amended, including, but not limited to, reducing the U.S. corporate statutory tax rate and eliminating or limiting deduction of several expenses which were previously deductible. We calculated our best estimate of the impact of the Tax Act in our fiscal 2017 financial statements in accordance with our understanding of the Tax Act and guidance available as of the filing of this Annual Report on Form 10-K. As a result, we recorded $4.4 million of additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The amount is related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. We also calculated our fiscal 2017 income tax expense using a blended rate of 33.7%, which is based on the applicable tax rates before and after the Tax Act and the number of days in the fiscal year that the respective tax rates were in effect. We have determined that these provisions are the only provisions of the Tax Act that impact fiscal 2017 results. In accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), any adjustments to the provisional amounts recorded in the fourth quarter of fiscal 2017 will be reported as a component of our income tax provision during the reporting period in which any such adjustments are determined, all of which will be reported no later than the fourth quarter of 2018. We continue to evaluate the impact of the Tax Act as further discussed below.

We are subject to the provisions of income tax guidance which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. However, in December 2017, the SEC staff issued SAB 118, which provides that companies that have not completed their accounting for the effects of the Tax Act but can determine a reasonable estimate of those effects should include a provisional amount based on their reasonable estimate in their financial statements.

Although the $4.4 million of additional income tax expense represents what we believe is a reasonable estimate of the impact of the income tax effects of the Tax Act as of February 3, 2018, it should be considered provisional. In light of the complexity of the Tax Act, we anticipate additional interpretive guidance will be issued by the U.S. Treasury, and adjustments to the provisional amount recorded in the fourth quarter of fiscal 2017 during the one-year measurement period provided by SAB 118 are probable. Once we finalize certain tax positions when we file our 2017 U.S. tax return, we will be able to conclude whether any further adjustments are required to our deferred tax assets and liabilities.