v3.25.1
Note 8 - Income Taxes
 12 Months Ended
Feb. 01, 2025
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

(8)

Income Taxes

 

The Company’s income before income taxes from domestic and foreign operations (which include the U.K., Canada, China, and Ireland), is as follows (in thousands):

 

  

Fiscal year ended

 
  

February 1,

  

February 3,

 
  

2025

  

2024

 

Domestic

 $63,872  $61,110 

Foreign

  3,269   5,219 

Total income before income taxes

 $67,141  $66,329 

 

The components of the income tax expense are as follows (in thousands):

 

  

Fiscal year ended

 
  

February 1,

  

February 3,

 
  

2025

  

2024

 
         

Current:

        

U.S. Federal

 $11,345  $12,080 

U.S. State

  2,834   3,205 

Foreign

  54   145 

Deferred:

        

U.S. Federal

  683   (537)

U.S. State

  161   (212)

Foreign

  279   (1,157)

Income tax expense

 $15,356  $13,524 

 

The provision for income taxes was $15.4 million in fiscal 2024 compared to $13.5 million in fiscal 2023. The 2024 effective rate of 22.9% differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the tax benefit of the foreign-derived intangible income (FDII) deduction. The 2023 effective rate of 20.4% differed from the statutory rate of 21% primarily due to the reversal of the valuation allowance in the U.K. partially offset by state income tax expense.

 

The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets based on all available positive and negative evidence. Changes in the valuation allowance in fiscal 2024 are primarily related to functional currency fluctuations.

 

Differences between the provision for income taxes at the U.S. federal statutory income tax rate and the provision in the consolidated statements of operations are as follows:

 

  

February 1,

  

February 3,

 
  

2025

  

2024

 
         

Income before income taxes

 $67,141  $66,329 

U.S. federal statutory income tax rate

  21%  21%

Income tax expense at statutory federal rate

  14,100   13,929 

State and local income taxes, net of federal tax benefit

  2,433   2,354 

Foreign-derived intangible income benefit

  (891)  (534)

Non deductible executive compensation

  572   1,038 

Effect of lower foreign taxes

  130   639 

Adjustment for unrecognized tax positions

  18   3 

Valuation allowance

  (1)  (5,075)

Other items, net

  (1,005)  1,170 

Income tax expense (benefit)

 $15,356  $13,524 

Effective tax rate

  22.9%  20.4%

 

 

Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):

 

  

February 1,

  

February 3,

 
  

2025

  

2024

 
         

Deferred tax assets:

        

Operating lease liability

 $23,866  $21,091 

Deferred revenue

  2,973   3,173 

Intangible assets

  2,747   2,954 

Accrued compensation

  1,624   2,249 

Deferred compensation

  1,034   822 

Depreciation

  918   1,063 

Receivables write-offs

  849   806 

Net operating loss carryforwards

  806   849 

Inventories

  674   871 

Accrued expenses

  329   334 

Carryforward of tax credits

  222   222 

Other

  68   163 

Total gross deferred tax assets

  36,110   34,597 

Less: Valuation allowance

  (1,533)  (1,546)

Total deferred tax assets, net of valuation allowance

  34,577   33,051 
         

Deferred tax liabilities:

        

Operating lease right-of-use assets

  (21,557)  (17,999)

Depreciation

  (3,096)  (4,222)

Deferred expense

  (1,436)  (1,451)

Inventories

  (890)  (682)

Other

  (2)  (15)

Total deferred tax liabilities

  (26,981)  (24,369)

Net deferred tax assets

 $7,596  $8,682 

 

As of February 1, 2025, the Company had gross net operating loss (NOL) carryforwards of approximately $3.2 million, $1.8 million of which relate to the U.K. where NOLs have no expiration date, and $1.4 million of which relate to China where NOLs are carried forward for five years subsequent to the year in which the loss was incurred.

 

The Company continues to assert its investments in foreign subsidiaries are permanent in duration and it is not practical to estimate the income tax liability on the outside basis differences.

 

As of February 1, 2025, the Company had no unrecognized tax benefits. As of February 3, 2024, the Company had total unrecognized tax benefits of $0.1 million, of which $0.1 million would favorably impact the Company’s provision for income taxes if recognized. In the fourth quarter of fiscal year 2024, the Company recorded additional unrecognized tax benefits of $0.1 million and settled all unrecognized tax benefits of $0.1 million. The Company reviews its uncertain tax positions periodically and accrues interest and penalties accordingly. Accrued interest and penalties included within other liabilities in the consolidated balance sheets was $0.0 million and less than $0.1 million for the years ended February 1, 2025, and February 3, 2024, respectively. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes within the consolidated statement of operations. For the years ended February 1, 2025, and February 3, 2024, the Company recognized an (expense) benefit of less than ($0.1) million and ($0.1) million, respectively, for interest and penalties. 

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

 

  

February 1,

  

February 3,

 
  

2025

  

2024

 
         

Balance at beginning of year

  66   66 

Increases for prior year tax positions

  8   - 

Settlements

  (74)  - 

Balance at end of year

  -   66 

 

Management does not expect the amount of unrecognized tax benefits to change by a material amount in the next twelve months.

 

The following tax years remain open in the Company’s major taxing jurisdictions as of February 1, 2025:

 

United States (Federal)2021 through 2024
United Kingdom2020 through 2024