Income Taxes

12 Months Ended

Jan. 29, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES:

The income tax provision consisted of the following:

	Fiscal 2021		Fiscal 2020		Fiscal 2019
Current:
Federal	$	12,847	$	(102,046)	$	4,593
State	658		468		(261)
Foreign	108		48		315
Total	13,613		(101,530)		4,647
Deferred:
Federal	157		(3,902)		(4,392)
State	30		5,532		545
Total	187		1,630		(3,847)
Income tax provision (benefit)	$	13,800	$	(99,900)	$	800

The foreign component of pre-tax income (loss), arising principally from operating foreign stores and other management and cost sharing charges we are required to allocate under U.S. tax law, for fiscal 2021, 2020 and 2019 was $(0.7) million, $(4.8) million and $(1.6) million, respectively.

On March 27, 2020, the CARES Act was enacted to provide economic relief to those impacted by the COVID-19 pandemic. The CARES Act made various tax law changes including among other things (i) modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019 and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes (ii) enhanced recoverability of AMT tax credit carryforwards and (iii) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k).

As a result of the CARES Act, during fiscal 2021, the Company received a tax refund of $50.0 million, and still maintains an $11.4 million income tax receivable related to the carryback of 2020 net operating losses. The Company recorded an additional income tax benefit in fiscal 2021 of $2.5 million, over the $24.6 million that was recorded in fiscal 2020, related to the 2020 carryback as the Company was subject to higher federal corporate income tax rates in prior periods than the current statutory tax rate of 21%.

No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-time transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. There were no significant undistributed foreign earnings at January 29, 2022, January 30, 2021 and February 1, 2020.

A reconciliation between the statutory federal income tax rate and the effective income tax rate follows:

 

	Fiscal 2021		Fiscal 2020		Fiscal 2019 (1)
Federal income tax rate	21.0	%	21.0	%	21.0	%
State income tax, net of federal tax benefit	4.7		3.3		(1.4)
Goodwill impairment with no tax basis	—		(3.3)		—
Impact of the CARES Act	(4.2)		8.6		—
Excess share-based compensation	0.3		(0.3)		(19.3)
Provision-to-tax return adjustments	—		—		(8.9)
Valuation allowance	(1.0)		(7.6)		(4.9)
Executive compensation limitations	1.1		—		(3.8)
Foreign losses with full valuation allowance	0.1		(0.1)		(3.8)
Federal tax credits	(0.6)		—		6.0
Changes in uncertain tax positions	(0.4)		—		4.2
Other items, net	2.0		0.1		4.2
Total	23.0	%	21.7	%	(6.7)	%

(1) Given the low level of pre-tax income in absolute dollars in fiscal 2019, effective tax rate reconciling items that may have been considered de minimis in prior years in terms of absolute dollars and on a percentage basis are amplified on a percentage basis in the current year even though the absolute dollar value of the reconciling items are similar to prior year. As such, comparability of information disclosed for fiscal 2019 in comparison to fiscal 2020 and fiscal 2021 may be difficult as a result of the amplifying effect of the lower level of pre-tax income.

Deferred tax assets and liabilities are recorded due to different carrying amounts for financial and income tax reporting purposes arising from cumulative temporary differences. These differences consist of the following as of January 29, 2022 and January 30, 2021:

	January 29, 2022		January 30, 2021
Deferred tax assets:
Operating lease liabilities	$	141,918	$	182,875
Accrued liabilities and allowances	18,346		13,529
Share-based compensation	2,661		1,774
Property related	353		1,200
Charitable contribution limitation carryforwards	—		706
State and foreign net operating loss carryforwards	10,210		11,808
Federal and state tax credit carryforwards	4,227		4,429
Other	1,438		2,900
Total deferred tax assets	179,153		219,221
Valuation allowance	(35,754)		(36,081)
Net deferred tax assets	143,399		183,140
Deferred tax liabilities:
Operating lease assets	(118,808)		(153,791)
Inventories	(4,173)		—
Prepaid and other expenses	(2,390)		(1,572)
Property related	(14,222)		(24,371)
Other intangible assets	(5,306)		(4,718)
Total deferred tax liabilities	(144,899)		(184,452)
Net deferred taxes	$	(1,500)	$	(1,312)

As of January 29, 2022, the Company had deferred tax assets for state and local net operating losses and federal and state tax credit carryovers in the amounts of $167.8 million and $5.4 million, respectively, on a gross basis that could be utilized to reduce future years' tax liabilities. The net operating losses and tax credit carryovers expire, if unused, in the years 2022 - 2040 and 2022 - 2028, respectively. As of January 29, 2022, the Company had deferred tax assets related to foreign net operating loss

carryforwards in the amount of $3.9 million on a gross basis. The foreign carryforwards will begin to expire, if unused, in 2022. Some foreign net operating losses have an indefinite carryforward.

We consider both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable evidence. We give operating results during the most recent three-year period a significant weight in our analysis. We typically only consider forecasts of future profitability when positive cumulative operating results exist in the most recent three-year period. We perform scheduling exercises to determine if sufficient taxable income of the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. We consider tax planning strategies that are prudent and feasible to accelerate taxable amounts if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized.

We consider our current forecasts of future profitability in assessing our ability to realize our deferred tax assets, including our state and local net operating losses and credit carryforwards. These forecasts include the impact of recent trends, including various macroeconomic factors such as the impact of the pandemic, on our profitability. Macroeconomic factors, including the impact of the pandemic, possess a high degree of volatility and can significantly impact our profitability. Given this uncertainty and the Company’s cumulative three year losses, we believe we cannot rely on forecasts of future profitability for purposes of our assessment of the realizability of deferred tax assets and as such, we conclude that it is not more likely than not that, at January 29,2022, our U.S. net deferred tax assets will be utilized and a full valuation allowance has been maintained.

For the fiscal years 2021 and 2020, the Company maintained a valuation allowance of $35.8 million and $36.1 million, respectively, attributable to deferred tax assets, state, local and foreign net operating loss carryforwards and federal and state tax credits which are not realizable on a more likely than not basis. While the Company does not expect material adjustments to the total amount of valuation allowances within the next twelve months, changes in assumption may occur based on the information then currently available. In such case, the Company will record an adjustment in the period in which a determination is made.

Accumulated other comprehensive gain is shown net of deferred tax assets and deferred tax liabilities. The amount was not significant at January 29, 2022 or January 30, 2021.

A reconciliation of the beginning and ending amounts of uncertain tax positions for each of fiscal 2021, fiscal 2020 and fiscal 2019 is as follows:

 

	Fiscal 2021		Fiscal 2020		Fiscal 2019
Balance at beginning of year	$	667	$	747	$	1,505
Additions for tax positions of prior years	—		—		82
Reductions for tax positions of prior years	(280)		—		(45)
Additions for tax positions for the current year	137		—		—
Settlements/payments with tax authorities	(87)		—		(538)
Reductions due to lapse of applicable statutes of limitation	—		(80)		(257)
Balance at end of year	$	437	$	667	$	747

At January 29, 2022, January 30, 2021 and February 1, 2020, balances included $0.3 million, $0.5 million and $0.6 million respectively, of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate in future periods. We do not expect any events to occur that would cause a change to our unrecognized tax benefits or income tax expense within the next twelve months.

Our continuing practice is to recognize potential accrued interest and penalties relating to unrecognized tax benefits in the income tax provision. We accrued $0.0 million for interest and penalties for each of the fiscal years 2021, 2020 and 2019. We had approximately $0.0 million, $0.0 million and $0.1 million, respectively, for the payment of interest and penalties accrued at January 29, 2022, January 30, 2021 and February 1, 2020, respectively. The amounts included in the reconciliation of uncertain tax positions do not include accruals for interest and penalties.

In fiscal 2006, we began participating in the IRS’s real time audit program, Compliance Assurance Process (“CAP”). Under the CAP program, material tax issues and initiatives are disclosed to the IRS throughout the year with the objective of reaching an agreement as to the proper reporting treatment when the federal return is filed. Previous years through fiscal 2019 have been accepted. Fiscal 2020 is in the post-filing review process.

We are no longer subject to state and local examinations for years before fiscal 2013. Various state and foreign examinations are currently underway for fiscal periods spanning from 2013 through 2019; however, we do not expect any significant change to our uncertain tax positions within the next year.