Income Taxes
The components of income tax expense were as follows (in thousands):
|
| | | | | | | | | | | | |
| | January 28,
2017 | | January 30,
2016 | | January 31,
2015 |
Current: | | | | | | |
Federal | | $ | 8,810 |
| | $ | 19,823 |
| | $ | 20,715 |
|
Foreign | | 526 |
| | 18 |
| | 54 |
|
State | | 1,124 |
| | 2,400 |
| | 1,631 |
|
| | 10,460 |
| | 22,241 |
| | 22,400 |
|
Deferred: | | | | | | |
Federal | | (1,623 | ) | | (2,813 | ) | | (19 | ) |
State | | (553 | ) | | (527 | ) | | 447 |
|
| | (2,176 | ) | | (3,340 | ) | | 428 |
|
Total income tax expense | | $ | 8,284 |
| | $ | 18,901 |
| | $ | 22,828 |
|
A breakdown of the Company’s income from continuing operations before income taxes is as follows (in thousands):
|
| | | | | | | | | | | | |
| | January 28,
2017 | | January 30,
2016 | | January 31,
2015 |
Domestic | | $ | 24,891 |
| | $ | 46,386 |
| | $ | 63,445 |
|
Foreign | | 3,151 |
| | 73 |
| | 218 |
|
Total income from continuing operations before income taxes | | $ | 28,042 |
| | $ | 46,459 |
| | $ | 63,663 |
|
A reconciliation of income tax expense to the amount computed at the federal statutory rate is as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| | January 28,
2017 | | January 30,
2016 | | January 31,
2015 |
Federal taxes at statutory rate | | $ | 9,815 |
| | 35.0 | % | | $ | 16,261 |
| | 35.0 | % | | $ | 22,282 |
| | 35.0 | % |
State and local income taxes, net of federal benefit | | 371 |
| | 1.3 |
| | 1,217 |
| | 2.6 |
| | 1,350 |
| | 2.2 |
|
Impact of foreign rate differential | | (413 | ) | | (1.5 | ) | | — |
| | — |
| | — |
| | — |
|
Change in uncertain tax positions | | (1,426 | ) | | (5.1 | ) | | — |
| | — |
| | — |
| | — |
|
Other | | (63 | ) | | (0.2 | ) | | 1,423 |
| | 3.1 |
| | (804 | ) | | (1.3 | ) |
Total income tax expense | | $ | 8,284 |
| | 29.5 | % | | $ | 18,901 |
| | 40.7 | % | | $ | 22,828 |
| | 35.9 | % |
The decrease in the Company’s effective income tax rate from the federal statutory rate was primarily due to the release of certain federal and state income tax reserves resulting from the conclusion of an IRS audit in fiscal 2017. Additionally, in April 2016, the Company opened an office in Hong Kong to lead the global supply chain in Asia, including the oversight of sourcing and procurement. As a result, the Company began recognizing a small benefit in the current year.
During the third quarter of fiscal 2015, the Company discontinued retail operations in Japan. The above information consists of continuing operations only. At the beginning of fiscal 2015, the Company made an election for tax purposes to treat the Japan operations as a branch thereby causing the Japan activity to be taxed in the United States. The final tax accounting regarding Japan was recognized upon the sale of all Japan inventory in fiscal 2016.
Deferred income taxes reflect the net tax effects of temporary differences between the book and tax bases of assets and liabilities. Significant components of deferred tax assets and liabilities were as follows (in thousands):
|
| | | | | | | | |
| | January 28,
2017 | | January 30,
2016 |
Deferred tax assets: | | | | |
Compensation and benefits | | $ | 5,420 |
| | $ | 5,761 |
|
Inventories | | 2,718 |
| | 4,855 |
|
Deferred credits from landlords | | 11,722 |
| | 11,056 |
|
Other | | 4,913 |
| | 5,162 |
|
Subtotal deferred tax assets | | 24,773 |
| | 26,834 |
|
Less: valuation allowances | | — |
| | (194 | ) |
Total deferred tax assets | | 24,773 |
| | 26,640 |
|
Deferred tax liabilities: | | | | |
Property, plant, and equipment | | (8,505 | ) | | (12,970 | ) |
Other | | (2,729 | ) | | (2,307 | ) |
Total deferred tax liabilities | | (11,234 | ) | | (15,277 | ) |
Net deferred tax assets | | $ | 13,539 |
| | $ | 11,363 |
|
As of January 28, 2017, a provision for U.S. income tax has not been recorded on the temporary difference of approximately $1.9 million related to the Company’s foreign subsidiary. The Company has determined that this temporary difference is indefinitely reinvested outside of the U.S. The amount of unrecognized deferred tax liability related to this temporary difference is estimated to be $0.4 million.
Uncertain Tax Positions
A reconciliation of the beginning and ending gross amount of unrecognized tax benefits (excluding interest and penalties) is as follows (in thousands):
|
| | | | | | | | | | | | |
| | January 28,
2017 | | January 30,
2016 | | January 31,
2015 |
Beginning balance | | $ | 3,099 |
| | $ | 3,018 |
| | $ | 3,115 |
|
Net increases (decreases) in unrecognized tax benefits as a result of current year activity | | 15 |
| | 81 |
| | (97 | ) |
Reductions for tax positions of prior years | | (1,695 | ) | | — |
| | — |
|
Settlements | | (214 | ) | | — |
| | — |
|
Lapse of statute of limitations | | (328 | ) | | — |
| | — |
|
Ending balance | | $ | 877 |
| | $ | 3,099 |
| | $ | 3,018 |
|
As of January 28, 2017, of the $0.9 million of total unrecognized tax benefits, $0.6 million, which is net of federal benefit, would, if recognized, favorably affect the effective tax rate in future periods. Total unrecognized tax benefits are currently not expected to decrease by a significant amount in the next twelve months. The Company recognized an immaterial amount of interest only, no penalties, related to unrecognized tax benefits in the fiscal years ended January 28, 2017, January 30, 2016 and January 31, 2015. Unrecognized tax benefits are included within long-term liabilities in the Company's Consolidated Balance Sheets.
The current year decrease is primarily related to the release of federal and state income tax reserves resulting from the conclusion of an IRS audit.
The Company files income tax returns in the U.S. federal jurisdiction and various U.S. state and foreign jurisdictions. The Company is subject to U.S. federal income tax examinations for fiscal years 2015 and forward. With a few exceptions, the Company is subject to audit by various state and foreign taxing authorities for fiscal 2013 through the current fiscal year.