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

Income Taxes

v3.26.1
Income Taxes
 12 Months Ended
Jan. 31, 2026
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
On July 4, 2025, new federal tax legislation was enacted in the U.S. The most significant impacts to the Company of this legislation are the immediate expensing of domestic research and development expenditures and the permanent reinstatement of bonus depreciation for qualifying properties.
In connection with the sale of Family Dollar, completed on July 5, 2025, the Company expects to realize cash tax benefits from losses on the sale totaling approximately $445.0 million.
Income from continuing operations before income taxes is as follows:
  Year Ended
(in millions) January 31, 2026 February 1, 2025 February 3, 2024
United States $ 1,621.6  $ 1,361.0  $ 1,638.9 
Foreign 7.9  22.6  23.0 
Total $ 1,629.5  $ 1,383.6  $ 1,661.9 
The provision for income taxes consists of the following: 
  Year Ended
(in millions) January 31, 2026 February 1, 2025 February 3, 2024
Current taxes:
Federal $ 199.8  $ 238.0  $ 279.1 
State 56.5  53.6  61.9 
Foreign 0.5  0.2  — 
Total current taxes 256.8  291.8  341.0 
Deferred taxes:
Federal 122.4  37.7  38.8 
State 23.1  5.8  10.4 
Foreign 1.9  5.8  5.9 
Total deferred taxes 147.4  49.3  55.1 
Provision for income taxes $ 404.2  $ 341.1  $ 396.1 
A reconciliation of the statutory U.S. federal income tax rate and the effective tax rate follows: 
  Year Ended
(dollars in millions) January 31, 2026 February 1, 2025 February 3, 2024
Statutory U.S. federal income tax rate $ 342.2  21.0  % $ 290.6  21.0  % $ 349.0  21.0  %
Domestic Federal:
Cross-border tax laws 1.6  0.1  1.2  0.1  2.1  0.1 
Tax credits:
Work Opportunity Tax Credit (17.0) (1.0) (14.5) (1.0) (21.0) (1.3)
Nontaxable and nondeductible items 8.2  0.5  18.6  1.3  14.2  0.9 
Other, net 3.8  0.2  (1.6) (0.1) (5.4) (0.4)
Domestic state and local income taxes, net of federal income tax benefit (a) 66.6  4.1  44.7  3.2  56.2  3.4 
Foreign tax effects:
Other foreign jurisdictions 0.6  —  1.2  0.1  1.0  0.1 
Worldwide changes in unrecognized tax benefits (1.8) (0.1) 0.9  0.1  —  — 
Effective tax rate $ 404.2  24.8  % $ 341.1  24.7  % $ 396.1  23.8  %
(a) During the year ended January 31, 2026, state taxes in California, Florida, Illinois, Michigan, New Jersey, and New York made up greater than 50 percent of the tax effect in this category. During the year ended February 1, 2025, state taxes in California, Florida, Illinois, Michigan, New Jersey, New York, and Virginia made up greater than 50 percent of the tax effect in this category. During the year ended February 3, 2024, state taxes in California, Illinois, Michigan, New Jersey, New York, and Virginia made up greater than 50 percent of the tax effect in this category.
Reinvestment of Unremitted Earnings
Substantially all of our current year foreign cash earnings in excess of working capital and cash needed for strategic investments are not intended to be indefinitely reinvested offshore. Therefore, the tax effects of repatriation for applicable state taxes and foreign withholding taxes of such cash earnings have been provided for in the accompanying Consolidated Statements of Operations. We have the intent and ability to reinvest substantially all of the non-cash unremitted earnings of our non-U.S. subsidiaries indefinitely. Accordingly, no provision for state taxes or foreign withholding taxes was recorded on these unremitted earnings in the accompanying Consolidated Statements of Operations.
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of our net deferred tax assets (liabilities) follow:
(in millions) January 31,
2026		 February 1,
2025
Deferred tax assets:    
Operating lease liabilities $ 1,200.1  $ 1,841.3 
Impairment of assets held for sale —  870.3 
Net operating losses, interest expense and credit carryforwards 250.6  55.4 
Accrued expenses 26.2  37.2 
Accrued compensation expense 41.9  39.5 
State tax election —  11.8 
Other 1.7  3.3 
Total deferred tax assets 1,520.5  2,858.8 
Valuation allowance (17.4) (11.6)
Deferred tax assets, net 1,503.1  2,847.2 
Deferred tax liabilities:    
Operating lease ROU assets (1,128.5) (1,698.8)
Other intangibles (16.5) (196.1)
Property and equipment (443.2) (623.7)
Prepaids (48.5) (46.1)
Inventory (18.7) (21.9)
Total deferred tax liabilities (1,655.4) (2,586.6)
Deferred income taxes, net $ (152.3) $ 260.6 
At January 31, 2026, we had deferred taxes related to certain state tax credit carryforwards, net operating loss carryforwards and interest expense carryforwards totaling $121.6 million. Some of these carryforwards will expire, if not utilized, beginning in fiscal 2026 through fiscal 2046. We had deferred taxes related to federal net operating loss and credit carryforwards totaling $129.0 million. The federal loss carryforward is indefinite, but credit carryforwards will expire, if not utilized, beginning in fiscal 2045.
A valuation allowance of $17.4 million, net of federal tax benefits, has been provided principally for certain state credit carryforwards and net operating loss carryforwards. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred taxes will not be realized. Based upon the availability of carrybacks of future deductible amounts and our projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not the remaining existing deductible temporary differences will reverse during periods in which carrybacks are available or in which we generate net taxable income.
Uncertain Tax Positions
We are participating in the IRS Compliance Assurance Process (“CAP”) for fiscal 2025 and we have been accepted into the program for fiscal 2026. This program accelerates the examination of key transactions with the goal of resolving any issues before the tax return is filed. Our federal tax returns have been examined and all issues have been settled through the fiscal 2022 tax year. The fiscal 2023 tax year is still open. The fiscal 2024 tax year has been examined and closed. Several states completed their examinations during fiscal 2025. In general, fiscal 2022 and forward are within the statute of limitations for state tax purposes. The statute of limitations is still open prior to fiscal 2022 for some states.
The balance for unrecognized tax benefits at January 31, 2026 was $29.7 million. The total amount of unrecognized tax benefits at January 31, 2026 that, if recognized, would affect the effective tax rate was $24.3 million (net of the federal tax benefit).
The following is a reconciliation of our total gross unrecognized tax benefits:
(in millions) January 31, 2026 February 1, 2025
Beginning Balance $ 28.2  $ 22.0 
Additions for tax positions of prior years 1.8  10.2 
Additions, based on tax positions related to current year 4.0  4.8 
Settlements (0.1) (2.3)
Lapses in statutes of limitation (4.2) (6.5)
Ending balance $ 29.7  $ 28.2 
As of January 31, 2026, we have recorded a liability for potential interest and penalties of $3.6 million.
Cash Taxes Paid
Cash income taxes paid, net of refunds received, consisted of the following:
  Year Ended
(in millions) January 31, 2026 February 1, 2025 February 3, 2024
Federal $ 119.0  $ 140.0  $ 226.0 
State and local
 21.7  34.6  44.2 
Foreign 0.5  —  — 
Total $ 141.2  $ 174.6  $ 270.2 
No state, local or foreign jurisdiction exceeded five percent of total income taxes paid.