Note 11. Income Taxes

The sources of income (loss) before income taxes and equity in net income of equity method investment are from the United States, the Company's subsidiaries in the United Kingdom and the Company's French branch. Substantially all of the Company's pretax income (loss) is in the U.S. The Company files U.S. federal income tax returns and income tax returns in various state and local jurisdictions.

Current income taxes are the amounts payable under the respective tax laws and regulations on each year's earnings. Deferred income tax assets and liabilities represent the tax effects of revenues, costs and expenses, which are recognized for tax purposes in different periods from those used for financial statement purposes.

The provision for income taxes was $2,584 for the year ended January 31, 2026, resulting in an effective tax rate of 35.1% compared to 15.6% in fiscal 2024. This increase in the Company's effective rate is primarily due to an increase in state taxes and changes in the valuation allowance, partially offset by nontaxable ERC benefits.

The benefit for income taxes was $3,642 for the year ended February 1, 2025. This benefit was primarily driven by a tax benefit of $3,006 associated with the impairment of goodwill primarily due to the reversal of the non-cash deferred tax liability previously created by the amortization of the Vince goodwill indefinite-lived intangible asset recognized for tax, but not for book purposes, which previously could not be used as a source of income to support the realization of certain deferred tax assets related to the Company's net operating losses. The tax benefit was also driven by a tax benefit of $1,276 related to the reversal of a portion of the non-cash deferred tax liability related to the Company's equity method investment, which a portion can now be used as a source of income to support the realization of certain deferred tax assets related to the Company's net operating losses. The tax benefit was offset primarily by the current federal and state tax expense of $611.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law by President Trump. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The OBBBA did not have a material impact on our consolidated financial statements for the year ended January 31, 2026.

As of January 31, 2026, the Company had a gross federal net operating loss of $185,894 (federal tax effected amount of $39,038) that may be used to reduce future federal taxable income. Federal net operating losses of 11,117 that were incurred in tax years that began before January 1, 2018 will expire through 2038. Net operating losses of $174,777 incurred in tax years beginning after January 1, 2018 have an indefinite carryforward period.

As of January 31, 2026, the Company had gross state net operating loss carryforward of $164,576 (tax effected amount of $4,961) that may be used to reduce future state taxable income. The net operating loss carryforwards for state income tax purposes expire at varying rates.

Section 382 of the Internal Revenue Code of 1986 (“IRC”) subjects the future utilization of net operating losses to an annual limitation in the event of certain ownership changes, as defined. The Company determined that under Section 382, the P180 Acquisition resulted in an ownership change in January 2025. Due to the annual limitation of the Company’s net operating losses, gross federal net operating losses of $232,595 (federal tax effected amount of $48,844) incurred in tax years beginning before January 1, 2018 will expire unused prior to becoming available and therefore, the Company recorded an adjustment to write off these net operating losses in fiscal 2024. An additional $3,027 (federal tax effected amount of $636) was written off in fiscal 2025 due to Section 382 limitation. A corresponding adjustment was recorded to release the valuation allowance that was maintained on these net operating losses.

The valuation allowance for deferred tax assets was $54,521 as of January 31, 2026, increasing by $1,127 from the valuation allowance for deferred tax assets of $53,394 as of February 1, 2025. The Company maintains a full valuation allowance on all deferred tax assets except to the extent that the indefinite lived deferred tax assets (related to interest expense and net operating loss carryforwards) offset the future reversal of indefinite lived deferred tax liabilities. Adjustments to the valuation allowance are made when there is a change in management's assessment of the amount of deferred tax assets that are realizable.

As of both January 31, 2026 and February 1, 2025, the Company had unrecognized tax benefits in the amount of $0.

The Company includes accrued interest and penalties on underpayments of income taxes in its income tax provision. As of January 31, 2026 and February 1, 2025, the Company did not have any interest and penalties accrued on its Consolidated Balance Sheets and no related provision or benefit was recognized in each of the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended January 31, 2026 and February 1, 2025.

With limited exceptions, fiscal years January 28, 2023 through January 31, 2026 remain subject to examination. For years prior to fiscal year 2022, adjustments can be made by the taxing authorities only to the extent of the net operating losses carried forward.