9. Income taxes

The Company is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to its allocable share of any taxable income or loss of EWC Ventures. The remaining share of EWC Ventures income or loss is non-taxable to the Company and is not reflected in current or deferred income taxes.

EWC Ventures is a limited liability company that is treated as a partnership for U.S. federal income tax purposes and for most applicable state and local income tax purposes. As a partnership, EWC Ventures is not subject to U.S. federal and certain state and local income taxes. For U.S. federal and certain state and local income taxes, taxable income or loss generated by EWC Ventures is passed through to its members and included in the taxable income or loss of its members on a pro rata basis, subject to applicable tax regulations.

We recorded $2,060 and $3,441 in income tax expense for the 13 and 26 weeks ended July 5, 2025, respectively, and $1,721 and $2,933 in income tax expense for the 13 and 26 weeks ended July 6, 2024, respectively. The effective tax rate was 27.6% and 30.2% for the 13 and 26 weeks ended July 5, 2025, respectively, and 22.5% and 23.4% for the 13 and 26 weeks ended July 6, 2024, respectively. The effective tax rate for the 13 and 26 weeks ended July 5, 2025 differs from the U.S. federal statutory rate primarily due to nondeductible officer compensation, non-taxable income attributable to noncontrolling interest, state taxes and the tax effects of stock compensation. The effective tax rate for the 13 and 26 weeks ended July 6, 2024 differs from the U.S. federal statutory rate primarily due to non-taxable income attributable to noncontrolling interest, state taxes and the tax effects of stock compensation.

The One Big Beautiful Bill Act

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law in the United States which permanently extends select expiring provisions of the Tax Cuts and Jobs Act. The OBBBA includes provisions related to accelerated fixed asset depreciation under section 168(k), changes to interest expense limitations under 163(j) and changes to deductibility of compensation under section 162(m). We’ve considered the impact of the OBBBA on the Company’s annual effective tax rate. The changes did not have a significant impact to the annual effective tax rate.

Tax Receivable Agreement

As of July 5, 2025, future payments under the TRA are expected to be $198,334. Payments made under the TRA represent payments that otherwise would have been made to taxing authorities in the absence of attributes obtained by us as a result of exchanges by our pre-IPO members. Such amounts will be paid only when a cash tax savings is realized as a result of attributes subject to the TRA. That is, payments under the TRA are only expected to be made in periods following the filing of a tax return in which we are able to utilize certain tax benefits to reduce our cash taxes paid to a taxing authority. The impact of any changes in the projected obligations under the TRA as a result of changes in the geographic mix of the Company’s earnings, changes in tax legislation and tax rates or other factors that may impact the Company’s tax savings will be reflected in other expense on the condensed consolidated statement of operations in the period in which the change occurs.