Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.25.1
Income Taxes
 12 Months Ended
Feb. 02, 2025
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 2025, 2024, and 2023 are set forth below:
2025 2024 2023
Current taxes:
U.S. federal $ 6,767  $ 6,898  $ 6,127 
State and local 2,600  3,190  3,190 
Total current tax expense $ 9,367  $ 10,088  $ 9,317 
Deferred taxes:
U.S. federal $ (3,498) $ (1,238) $ 1,767 
State and local (976) (888) (723)
Total deferred tax (benefit) expense (4,474) (2,126) 1,044 
Total income tax expense $ 4,893  $ 7,962  $ 10,361 
A reconciliation of income taxes at the federal statutory corporate rate to the effective rate for fiscal 2025, 2024, and 2023 is as follows:
2025 2024 2023
Provision (benefit) at federal Statutory rates 21.0  % 21.0  % 21.0  %
State tax, net of federal provision (benefit) 6.6  % 5.1  % 4.9  %
Non-deductible executive compensation —  % 0.3  % 1.8  %
Permanent adjustments 0.2  % 0.1  % 0.2  %
Penalties 1.9  % —  % —  %
Equity-based compensation 2.7  % 0.5  % 0.1  %
Research and development credit (2.1) % (3.6) % —  %
Other (0.4) % 0.2  % 0.1  %
Uncertain tax benefits (0.2) % 1.4  % —  %
Effective tax rate 29.7  % 25.0  % 28.1  %
Significant components of the Company's deferred tax assets are as follows (in thousands):
February 2, 2025 February 4, 2024
Deferred Income Tax Assets
State net operating loss carryforward $ 286  $ 342 
Intangible assets 467  465 
Accrued liabilities 4,043  2,879 
Equity-based compensation 3,122  2,219 
Merchandise inventories 4,534  3,848 
Research and development capitalization 4,183  3,687 
Operating lease liabilities 46,994  45,220 
Total Deferred Income Tax Assets 63,629  58,660 
Deferred Income Tax Liabilities
Operating lease right of use asset (40,505) (40,393)
Property and equipment (7,847) (7,464)
Total Deferred Tax Liabilities (48,352) (47,857)
Net Deferred Income Tax Asset $ 15,277  $ 10,803 
At February 2, 2025 and February 4, 2024, the Company did not have any net operating loss carryforwards available for federal income tax purposes. The Company has approximately $4.8 million and $5.7 million of state net operating loss carryforwards as of February 2, 2025 and February 4, 2024, respectively. The state net operating losses expire at various times between 2032 and 2040. The statute of limitations has expired for all tax years prior to 2022 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.
As of February 2, 2025 and February 4, 2024, 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 2025, 2024, and 2023 is as follows:
2025 2024 2023
Gross unrecognized tax benefit, beginning of period $ 452  $ —  $ — 
Additions based on tax positions related to the current year 65  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 (142) —  — 
Gross unrecognized tax benefit, end of period $ 375  $ 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 2, 2025 and February 4, 2024, the Company has unrecognized tax benefits of $0.4 million and $0.5 million, respectively. 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 material interest or penalties during fiscal 2025, 2024, and 2023. To the extent these unrecognized tax benefits are ultimately recognized, approximately $0.4 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. During fiscal 2025, the Company filed amended federal and state income tax returns for fiscal 2022 and 2023 as a result of the IRS audit settlement. The amended returns did not have a material impact to the financial statements.
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 2, 2025, 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 fiscal 2025, 2024, and 2023, due to the capitalization of research and development expenditures, the Company’s current federal taxable income increased by approximately $7.5 million, $9.0 million, and $7.7 million, respectively, with a corresponding increase in the Company’s deferred tax assets. The Company will continue to monitor the impact of changes in tax legislation.