Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
 12 Months Ended
Feb. 04, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company is subject to federal, state and local corporate income taxes. The components of the provision for income taxes reflected on the statements of operations for fiscal 2024, 2023, and 2022 are set forth below:
2024 2023 2022
Current taxes:
U.S. federal $ 6,898  $ 6,127  $ 412 
State and local 3,190  3,190  2,220 
Total current tax expense $ 10,088  $ 9,317  $ 2,632 
Deferred taxes:
U.S. federal $ (1,238) $ 1,767  $ (7,222)
State and local (888) (723) (2,499)
Total deferred tax (benefit) expense (2,126) 1,044  (9,721)
Total tax provision $ 7,962  $ 10,361  $ (7,089)
A reconciliation of income taxes at the federal statutory corporate rate to the effective rate for fiscal 2024, 2023, and 2022 is as follows:
2024 2023 2022
Provision (benefit) at federal Statutory rates 21.0  % 21.0  % 21.0  %
State tax, net of federal provision (benefit) 5.1  % 4.9  % 4.9  %
Non-deductible executive compensation 0.3  % 1.8  % 1.8  %
Permanent adjustments 0.1  % 0.2  % —  %
Equity-based compensation 0.5  % 0.1  % (4.4) %
Research and development credit (3.6) % —  % —  %
Other 0.2  % 0.1  % (0.4) %
Uncertain tax benefits 1.4  % —  % —  %
Change in valuation allowance —  % —  % (40.4) %
Income tax provision 25.0  % 28.1  % (17.5) %
Significant components of the Company's deferred tax assets are as follows (in thousands):
February 4, 2024 January 29, 2023
Deferred Income Tax Assets
State net operating loss carryforward $ 342  $ 440 
Intangible assets 465  403 
Accrued liabilities 2,879  2,952 
Equity-based compensation 2,219  3,247 
Merchandise inventories 3,848  724 
Research and development capitalization 3,687  1,920 
Operating lease liabilities 45,220  39,488 
Total Deferred Income Tax Assets 58,660  49,174 
Deferred Income Tax Liabilities
Operating lease right of use asset (40,393) (35,484)
Property and equipment (7,464) (5,013)
Total Deferred Tax Liabilities (47,857) (40,497)
Net Deferred Income Tax Asset $ 10,803  $ 8,677 
At February 4, 2024 and January 29, 2023, the Company did not have any net operating loss carryforwards available for federal income tax purposes. The Company has approximately $5.7 million and $7.1 million of state net operating loss carryforwards as of February 4, 2024 and January 29, 2023, respectively. The state net operating losses expire at various times between 2031 and 2040. The statute of limitations has expired for all tax years prior to 2020 for federal and state tax purposes. However, the net operating losses generated on the Company's federal and state tax returns in prior years may be subject to adjustments by the federal and state tax authorities.
Prior to the fiscal 2022 year-end, the Company recorded a full valuation allowance on its net deferred tax assets, as it did not meet the more likely than not threshold required under ASC 740-10-30. For the year ended January 30, 2022, the Company reversed its full valuation allowance of $16.4 million, as it assessed and concluded that it met the more likely than not threshold of realizing its net deferred tax assets. The main forms of positive evidence to support the valuation allowance release were the substantial realization of its net operating loss carryforwards and cumulative three years of income. As of February 4, 2024 and January 29, 2023, the Company did not record a valuation allowance against its net deferred tax assets, due to its assessment and conclusion that it is more likely than not that it would realize its net deferred tax assets.

A reconciliation of beginning and ending amounts of unrecognized tax benefits for fiscal 2024, 2023, and 2022 is as follows:
2024 2023 2022
Gross unrecognized tax benefit, beginning of period $ —  $ —  $ — 
Additions based on tax positions related to the current year 177  —  — 
Additions related to tax positions in prior year 275  —  — 
Settlements related to tax positions in a prior period —  —  — 
Decreases based on tax positions in a prior period —  —  — 
Gross unrecognized tax benefit, end of period $ 452  $ —  $ — 
The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold. As of February 4, 2024, the Company has unrecognized tax benefits of $0.5 million. As of January 29, 2023, the Company assessed and concluded that it did not have any unrecognized tax benefits. The Company does not anticipate any material adjustments relating to unrecognized tax benefits within the next twelve months; however, the ultimate outcome of tax matters is uncertain and unforeseen results can occur. We had no interest or penalties during fiscal 2024, 2023, and 2022. To the extent these unrecognized tax benefits are ultimately recognized, approximately $0.5 million will impact the Company’s effective tax rate. Our policy is to record interest and penalties directly related to uncertain tax positions as income tax expense in the statements of operations.

The Internal Revenue Service (IRS) has concluded the audit of the Company's fiscal 2019 federal income tax return as of February 4, 2024. The IRS has proposed immaterial adjustments, with the Company in the process of amending federal and state income tax returns for fiscal 2022 and 2023 as a result of the IRS audit settlement.

On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023. The Company assessed and concluded that the Inflation Reduction Act did not have an impact to the financials as of February 4, 2024, and will continue to monitor the impact of the changes.

For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022. For the years ended February 4, 2024 and January 29, 2023, due to the capitalization of research and development expenditures, the Company’s current federal taxable income increased by approximately $9.0 million and $7.7 million, respectively, with a corresponding increase in the Company’s deferred tax assets. These changes in tax laws did not have a material impact on the Company’s results of operations for the year ended January 30, 2022. The Company will continue to monitor the impact of changes in tax legislation.