ITEM 1A. RISK FACTORS.
RISK FACTORS
Investing in our common stock or other securities involves risk. You should carefully consider each of the following risks and all of the other information contained in this Annual Report on Form 10-K when evaluating our business. Our business, prospects, results of operations, financial condition or cash flows could be materially and adversely affected by any of these risks, as well as additional risks and uncertainties that are not described in this Annual Report because they are not presently known to us or we currently deem them immaterial.
Risks Relating to Our Business
Our business is impacted by general economic conditions, and adverse economic conditions could have a material adverse effect on our business, results of operations and financial condition.
Adverse economic conditions in the United States and globally have had and may continue to have an adverse effect on our business, results of operations, and financial condition. Adverse economic conditions may include weakened consumer demand, persistent inflation, supply chain challenges, labor shortages, high interest rates, foreign currency exchange volatility and risk of recession. Geopolitical instability, actual and potential shifts in U.S. and foreign trade, economic and other policies, as well as other global events, have increased macroeconomic uncertainty. Depending on their duration and magnitude, these and other adverse economic conditions could continue to adversely affect our business, financial condition, results of operations and cash flows. Future economic deterioration, market disruptions, or changes to fiscal and monetary policy or trade policy, including the imposition or threatened imposition of tariffs and potential retaliatory actions, could negatively impact our business. An economic downturn or a recession, or the perception that any of these events may occur, or continued or increased economic uncertainty may also lead to increased credit risk, higher borrowing costs or reduced availability of capital and credit markets, reduced liquidity, asset impairments and adverse impacts on our suppliers and the financial institutions with whom we transact.
Our sales are impacted by discretionary spending by consumers, which tend to be adversely impacted by unfavorable local, regional, national or global economic conditions. Purchases of our products may decline during periods when economic or market conditions are volatile or weak. Declines in consumer spending may result in reduced demand for our products, increased inventories, lower revenues, higher promotional activity and lower gross margins. Continued volatility in the availability and prices for commodities and raw materials we use in our products and in our supply chain could have an adverse effect on our costs, gross margins and profitability. In addition, we may be unable to access financing in the credit and capital markets at reasonable rates in the event we find it necessary or desirable to do so.
Our financial performance has and may continue to be adversely impacted by inflationary pressures, which are subject to market conditions and impacted by fiscal and monetary policy as well as domestic and international trade policy, including the imposition or threatened imposition of tariffs or other trade restrictions. Inflationary pressures on the products we sell could impact our revenues and profitability, especially if we are unable to increase our retail prices to reflect increases in our costs. When levels of inflation are higher than typical, consumer confidence and spending patterns are negatively impacted, which impacts our sales and profitability.
We have recently experienced significant impacts on our business and cost structure due to tariffs. We are implementing various mitigation strategies, but we may not be successful in fully offsetting the impacts of tariffs, particularly in the near term. Many of our mitigation strategies require significant lead time to implement and their effectiveness depends on factors outside our control. Our ability to mitigate cost increases through pricing is limited by competitive dynamics and consumer price sensitivity. We are unable to predict future economic conditions, the extent to which consumer behavior may be impacted by negative economic conditions, or how those trends will impact our business, results of operations and financial condition.
Our revenue, results of operations and cash flows are sensitive to consumer confidence and spending patterns, and may be adversely affected by negative political or economic conditions, geopolitical conflicts, significant health hazards or pandemics, severe weather or other market disruptions.
Our revenue, results of operations, cash flows and future growth may be adversely affected by negative local, regional, national or international political or economic trends or developments, the effects of national and international security concerns such as war, terrorism or the threat thereof, to the extent such developments reduce consumers’ ability or willingness to make discretionary purchases. Ongoing geopolitical conflicts in Europe and the Middle East, uncertainty in the global trade environment, as well as economic sanctions and other measures imposed in response thereto have created, and may continue to create, market disruption and volatility, supply chain disruptions, inflationary pressures, and geopolitical instability. These events and similar events in the future could have a material adverse effect on our customers, our international partners and our third-party suppliers, and may negatively impact our international sales in stores and digital channels.
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In addition, market disruptions due to natural disasters, significant health hazards, epidemics or pandemics, or other major events or the prospect of these events could also impact consumer spending and confidence levels. Similar to the disruption we experienced from the COVID-19 global pandemic, future pandemics, epidemics, disease outbreaks or other similar widespread public health concerns may disrupt our business, human capital, supply chain and production processes, which could have a material adverse effect on our results of operations and financial condition. Extreme weather conditions in the areas in which our stores, corporate offices, or production and distribution facilities are located, particularly areas where we have significant production or distribution operations, could adversely affect our business. Market disruptions and adverse market conditions caused by these and other factors could have a material adverse effect on our , financial condition and cash flows.
Changes in trade policies and tariffs imposed by the United States government and the governments of other nations could continue to have a material adverse effect on our business and results of operations.
Our operations rely on the global sourcing, manufacturing, and sale of products, and our supply chain is subject to the risks inherent in international trade, including potential changes in trade policies, increases in import duties, anti-dumping measures, quotas, safeguard measures, trade restrictions, restrictions on fund transfers, and currency fluctuations. Additionally, geopolitical instability and other geopolitical factors may further impact our ability to source and distribute products efficiently. Changes in laws or policies governing the terms of trade, and in particular increased trade restrictions, tariffs, or taxes on imports from countries where we source materials and manufacture products could have a material adverse effect on our business and financial results. For example, in recent years, both the U.S. and China have imposed new tariffs on each other related to the importation of certain product categories, including imports of apparel into the U.S. from China.
Throughout 2025, the U.S. presidential administration imposed varying levels of tariffs on several countries where we source materials and manufacture products. We estimate tariffs, net of mitigation efforts, negatively impacted our operating income during fiscal 2025 by approximately $85 million and resulted in increased expenses, supply chain disruption, and uncertainty. We are closely monitoring this evolving situation and evaluating our responses, which may include shifts in sourcing strategies, price adjustments, or other cost-mitigation measures. However, there can be no assurance that we will be able to fully mitigate the financial and competitive impacts of such tariffs or trade restrictions. At this time, the overall impact on our business related to these tariffs remains uncertain and depends on multiple factors, including the duration and potential expansion of current tariffs, future changes to tariff rates, scope, or enforcement, retaliatory measures by impacted exporting countries, inflationary effects and broader macroeconomic responses, changes to consumer purchasing behavior, and the effectiveness of our responses in managing these challenges.
On February 20, 2026, the U.S. Supreme Court struck down certain tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”). Following the Supreme Court’s decision, the U.S. administration announced a new 10% global tariff under Section 122 of the Trade Act of 1974, subject to certain exceptions. It is unclear at this time what impact these decisions will have on our results of operations, including whether we will be able to obtain refunds for amounts previously paid for the IEEPA tariffs, any changes in tariff levels, or the imposition of new tariffs through other means.
If the U.S. government continues or increases existing tariffs or imposes additional tariffs on products imported from countries where we source materials or manufacture our products, or if new or additional retaliatory trade measures are taken by other countries in response to U.S. tariffs, there can be no assurance that we will be able to offset all related increased costs. This potential increase in costs and our efforts to mitigate such increase in costs could be materially adverse to our business and results of operations or harm our competitive position. We cannot predict if, and to what extent, there may be changes to international trade policies or the resulting impact of any such changes on our business and results of operations.
Our future success depends in part on our ability to successfully implement our long-term strategic growth plan.
We are in the process of executing a long-term strategic plan to grow our business, increase our revenue and operating income, and build long-term sustainable value for our stockholders. To support achievement of our plan, which we refer to as the Path to Potential, we are implementing a number of strategic initiatives, including initiatives focused on building a customer-centric performance culture, improving our product development processes, operating with efficiency, evolving our brand projection, how we go to market, and our customer experience, and upgrading our technologies to support speed and innovation throughout our business, especially our supply chain and merchandising functions. There can be no assurance that these or other future strategic initiatives will be successful to the extent we expect, or at all. In addition, we are investing significant resources in these initiatives and the costs of the initiatives may outweigh their benefits. We cannot give assurance that our management will be able to manage these initiatives effectively or implement them successfully. If we fail to implement our strategic plan effectively, if we invest resources in initiatives that ultimately prove to be , or if our competitors are more in implementing their strategic plans and initiatives than we are, our business and results of operation could be affected.
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Our net sales, operating income, cash and inventory levels fluctuate on a seasonal basis.
We experience major seasonal fluctuations in our net sales and operating income, with a significant portion of our operating income typically realized during the fourth quarter holiday season. Any decrease in sales or margins during this period could have a material adverse effect on our results of operations, financial condition and cash flows.
Seasonal fluctuations also affect our cash and inventory levels, since we usually order merchandise in advance of peak selling periods and sometimes before new fashion trends are confirmed by customer behavior. We typically accumulate a significant amount of inventory in the months preceding the holiday season selling period. If we are not successful in selling that inventory at desired prices, we may have to sell the inventory at significantly reduced prices or may not be able to sell the inventory at all, which could have a material adverse effect on our results of operations, financial condition and cash flows.
If we fail to maintain effective internal controls, we may not be able to report our financial results accurately or timely or prevent or detect fraud, which could have a material adverse effect on our business or the market price of our common stock.
In accordance with Section 404 of the Sarbanes-Oxley Act, our management is required to conduct an annual assessment of the effectiveness of our internal control over financial reporting and include a report on these internal controls in our Annual Reports on Form 10-K, and our independent registered public accounting firm is required to formally attest to the effectiveness of our internal controls. This process involves considerable time, attention, operating expenses and outside auditor fees, and may strain our internal resources, including accounting systems and resources. If management or our independent registered public accounting firm determines that our internal control over financial reporting is not effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. We could also become subject to investigations by the New York Stock Exchange (“NYSE”), the SEC or other regulatory authorities, which could require additional financial and management resources. In addition, if our controls are not effective, our ability to prevent and detect fraud and accurately and timely report our financial position could be , which could result in filings of our annual and quarterly reports under the Exchange Act, of our financial statements, a in our stock price, or or of our common stock from the NYSE. Any of these events could have a material effect on our business, financial condition, prospects and results of operations.
Changes and turnover in company leadership or other key positions may have an adverse impact on our performance.
We may experience changes in our leadership structure or key leadership positions in the future. The departure of key leadership personnel could result in the loss of significant knowledge, experience and expertise. This loss of knowledge and experience can be mitigated through successful promotions, hiring and transition, but there can be no assurance that we will be successful in such efforts. Attracting and retaining qualified senior leadership may be more challenging under adverse business conditions or a competitive labor market. Failure to build an effective leadership structure and team, attract and retain the right talent, or effectively manage the transition of knowledge and responsibilities resulting from such changes could affect our ability to accomplish our strategic plans and may have a material effect on our business, results of operations and financial condition.
We may be impacted by our ability to attract, develop and retain qualified associates and manage labor-related costs.
We believe one of our key competitive advantages is providing a positive and engaging experience for our customers, which requires us to have highly trained and engaged associates. Our success depends in part on our ability to attract, develop and retain a sufficient number of qualified associates, including talented store personnel, designers and merchants. The turnover rate in the retail industry is generally high, and we may have difficulty hiring and retaining enough qualified individuals, especially during certain times of the year. Competition for such qualified individuals or changes in labor and employment laws could cause us to incur higher labor costs. Our inability to recruit enough qualified individuals may delay planned openings of new stores or affect the speed with which we grow. Delayed store openings, significant increases in associate turnover rates or significant increases in labor-related costs could have a material adverse effect on our results of operations, financial condition and cash flows.
Our net sales depend on a volume of traffic to our stores and the availability of suitable store locations on satisfactory terms.
Most of our stores are located in retail shopping areas, including malls and other types of retail centers. Sales at these stores are derived in part from the volume of traffic in those retail areas. Our stores often rely on the ability of the retail center and other attractions in an area to generate consumer traffic in the vicinity of our stores. Sales volume and retail traffic may be adversely affected by factors that we cannot control, such as economic downturns or changes in consumer demographics in a particular area, consumer trends away from brick-and-mortar retail toward online shopping, competition from digital and other retailers and other retail areas where we do not have stores, significant health hazards or pandemics, the closing of other stores or the decline in popularity or safety in the shopping areas where our stores are located, and the deterioration in the financial condition of the operators or developers of the shopping areas in which our stores are located.
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Our future growth and success depend on our ability to operate stores in desirable locations with suitable lease spaces and capital investment and lease costs providing an opportunity for us to earn a reasonable return. The market for prime retail real estate is competitive. We cannot be sure as to when or whether desirable store locations will become available to us at reasonable costs and on satisfactory lease and other terms. Some of our store locations require significant upfront capital investment and have material lease commitments. If we decide to close a store, we may remain obligated under the applicable lease for payment of the base rent for the balance of the lease term and other expenses. A dispute regarding our leases may result in litigation with the respective landlord, and any such dispute could be costly and have an uncertain outcome. These risks could have a material adverse effect on our ability to grow our business, as well as our results of operations, financial condition and cash flows.
Our success depends in part on our ability to successfully manage our store fleet.
Our continued growth and success depend in part on our ability to open and operate new stores and remodel existing stores in a timely and profitable manner. Our ability to open new stores depends on a number of factors, including the ability to partner with developers and landlords to obtain suitable sites for new stores at acceptable costs, the availability and cost of materials and contractors, the hiring and training of qualified personnel and the integration of new stores into existing operations. Our ability to remodel existing stores depends on a number of factors, including the ability to partner with developers and landlords to secure satisfactory lease terms and the availability and cost of materials and contractors. There can be no assurance we will be able to successfully implement our plans regarding opening new stores and remodeling existing stores or operate our new, remodeled and existing stores profitably. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Our international operations and our plans for international expansion include risks that could negatively impact our reputation and results of operations.
We intend to continue to grow our international operations and expand into new international markets through partner and/or joint venture arrangements. The risks associated with operating in international markets are numerous and may lead to disruption in the overall timing or profitability of our international expansion efforts. We may experience difficulty identifying new or underpenetrated markets where our products and brands will be accepted by customers, lack of customer familiarity with our brands, our lack of familiarity with local customer preferences and new markets may bring us into competition with new competitors or with existing competitors with an established market presence. Other risks include general economic conditions in specific countries or markets, volatility in the geopolitical landscape, restrictions on the repatriation of funds held internationally, disruptions or delays in shipments, occurrence of significant health hazards or pandemics, changes in diplomatic and trade relationships, political instability and foreign governmental regulation. These risks could have a material effect on our results of operations, financial condition and cash flows.
Our business is exposed to the risk of foreign currency exchange rate fluctuations that could impact our results of operations.
Our results of operations and financial condition may be adversely affected by fluctuations in currency exchange rates. In fiscal 2025, approximately 15% of our total net sales were derived from markets outside the U.S. We also utilize a distribution facility located in the Netherlands. Currencies other than the U.S. dollar are utilized for some of our international operations. We are exposed to foreign currency exchange rate risk with respect to our sales, profits, assets and liabilities denominated in currencies other than the U.S. dollar. In addition, our royalty arrangements are calculated based on sales in local currency, which exposes us to foreign currency exchange rate fluctuations. From time to time, we use foreign currency forward contracts to hedge certain foreign currency risks; however, these measures may not succeed in offsetting all of the short-term impacts of foreign currency rate movements on our business and results of operations. For example, hedging would generally not be effective in offsetting the long-term impact of sustained shifts in foreign exchange rates on our business results. As a result, the fluctuation in the value of the U.S. dollar against other currencies could have a material adverse effect on our results of operations, financial condition and cash flows.
Our licensees, franchisees, wholesalers, and joint venture partners could take actions or omissions that could harm our reputation and results of operations.
We have global representation through independently owned stores operated by our third-party partners. Although we have criteria to evaluate and select prospective partners, the level of control we can exercise over our partners is limited, and the quality and success of their operations is subject to risks and other factors beyond our control. For example, our partners may not have the business acumen, experience or financial resources necessary to successfully operate stores in a manner consistent with our standards and may not hire and train qualified store managers and other personnel. Further, we have limited control as to whether our partners comply with federal and local law. The image and value of our brands and our reputation may suffer materially if our partners do not operate successfully, ethically, and in compliance with applicable law. These risks could have an adverse effect on our results of operations, financial condition and cash flows.
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Our direct channel business is subject to risks that could have an adverse effect on our results of operations.
In fiscal 2025, approximately 31% of our total net revenue was derived from our digital channels, including our websites and mobile applications. Our ability to successfully operate and grow our digital operations is subject to numerous risks that could have a material adverse effect on our business and results of operations. Risks inherent in our digital operations include the difficulty in recreating our unique in-store experience through our direct channels; domestic or international resellers purchasing merchandise and reselling it outside our control; our ability to anticipate and implement innovations in technology and logistics in order to appeal to existing and prospective customers who increasingly rely on multiple channels to meet their shopping needs; our ability to anticipate and respond to shifts in customer preference and demand; and the failure of and risks related to the systems that operate our digital infrastructure, websites and the related support systems, including cybersecurity incidents, computer viruses, theft of customer information, privacy concerns, telecommunication failures and similar disruptions.
Disruptions and other factors that impact our ability to maintain efficient and uninterrupted order-taking and fulfillment operations could also have a material adverse effect on our business and results of operations. The satisfaction of our online customers depends on their timely receipt of merchandise. Difficulties with our distribution facilities, including if the facilities were to shut down for any reason, such as natural disaster, severe weather or labor stoppage, may materially disrupt our operations. Supply chain or product transportation challenges have caused and could continue to cause us to incur higher costs and longer lead times associated with distributing products to our customers. Any of these issues could cause customer dissatisfaction, reduced sales and profitability and have a material effect on our operations, financial condition and cash flows.
We may not be able to successfully integrate acquired businesses and realize the benefits and synergies sought with such acquisitions.
We may, from time to time, evaluate and pursue acquisitions and other strategic investments. These activities involve various risks that could result in unanticipated or increased liabilities and contingencies and hinder our ability to achieve expected benefits. With respect to any acquired company, we may fail to realize the expected benefits and synergies for a variety of reasons, including:
• failure to successfully manage relationships with customers, distributors and suppliers;
• failure of the acquired company’s customers to continue as customers of the combined company;
• integration may be more costly, time-consuming or less effective than anticipated;
• the loss of key employees; and
• failure to combine product offerings and purchase experiences efficiently and effectively.
Further, integration efforts could disrupt both companies’ existing operations and divert management’s attention and resources. If we experience difficulties with the integration process, the anticipated benefits of the acquisition, including anticipated sales and growth opportunities, may not be realized fully, or at all, and may take longer to realize than expected. Acquisitions or other strategic investments may not create value and may harm our brands and adversely affect our results of operations, financial condition and cash flows, decrease or delay the accretive effect of the acquisition, and negatively impact the price of our common stock.
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If we are unable to incorporate artificial intelligence and other emerging technological applications into our business operations successfully and ethically, our business, reputation and results of operations may be adversely affected.
Our long-term strategic growth plan and strategic initiatives include investments in information technology, data science and artificial intelligence (“AI”). The use of AI and similar technologies presents risks, challenges and ethical issues that could adversely affect our business. Generative, agentic, and other AI technologies may have flaws and be prone to cybersecurity incidents or service interruptions. Data sets used by AI or similar technologies may be overbroad, insufficient or contain biased information. AI or similar technologies may generate biased, offensive, illegal, inaccurate or otherwise harmful content. If the work product that AI or similar technological applications assist in producing is deficient, inaccurate or misleading, we could be subject to competitive harm, legal liability, regulatory action, and brand or reputational . Use of AI and similar technologies by our associates could increase the risk of exposure of confidential or competitively sensitive information. Privacy and risks related to intellectual property rights of inputs into the program and AI work product are also present. There is uncertainty regarding evolving laws and regulations at the federal, state and international levels regarding AI and other emerging technological applications. If we or offer AI solutions or other technologies that have consequences, usage or customization by our associates, customers or partners, or are because of their impact on human rights, privacy, security, employment, or other social, economic or political issues, we may experience reputational , regulatory action and legal liability. Further, we may be to quickly and execute our AI and other technological initiatives, adapt to rapid change resulting from in AI and similar technology, or our competitors may have more implementing and utilizing such technology than we do. Any of these risks could have an effect on our business, reputation and results of operations.
Our ability to protect our reputation could have a material effect on the image and value of our brands.
Our ability to protect and elevate our reputation is critical to the image and value of our brands. Our reputation could be jeopardized if we fail to maintain high standards for merchandise quality and corporate integrity. Negative publicity, including information publicized through traditional media or social media platforms, blogs, websites and other forums, may negatively impact our reputation and brand image and, consequently, reduce demand for our merchandise, even if such information is unverified or inaccurate.
Failure to comply, or the perception that we have failed to comply, with ethical, social, product, labor, privacy and environmental standards, or related political sentiment, could also jeopardize our reputation and potentially lead to various adverse consumer actions, including boycotts. Unfavorable ratings or assessments by organizations that evaluate companies on their approach to environmental, social and governance matters may also negatively affect our reputation and the perception of our brands. Failure to comply with applicable laws and regulations, maintain an effective system of internal controls, provide accurate and timely financial statement disclosure and maintain the security of customer, associate, third-party and Company information could also hurt our reputation. Damage to our reputation or loss of consumer confidence for these or other reasons could have a material effect on our business, results of operations, and financial condition, as well as require additional resources to rebuild our reputation.
If our marketing, advertising and promotional programs and events are unsuccessful, or if our competitors are more effective with their programs than we are, our revenue or results of operations may be adversely affected.
Customer traffic and demand for our merchandise are influenced by our advertising, marketing and promotional activities, including flagship events like the Victoria’s Secret Fashion Show, and the name recognition and reputation of our brands. We use marketing, advertising and promotional programs to attract customers through various media, including social media, influencers, websites, mobile applications, email and television. If our competitors are more effective with their programs than we are, expend more resources for their programs than we do, or use different approaches than we do, that may provide them with a competitive advantage. Our programs and events may not be successful, effective or could require increased expenditures, which could have a material adverse effect on our financial condition and results of operations.
Our ability to adequately maintain, enforce and protect our intellectual property rights could have an impact on the image and value of our brands, our competitive position, business operations, and our ability to successfully enter new markets.
We believe that our intellectual property rights, including trade names, trademarks, copyrights, patents and proprietary information, are important assets and an essential element of our strategy. Our ability to maintain, enforce, and protect our intellectual property rights is critical to the image and value of our brands, our competitive position, and our business operations, especially with respect to expanding into new markets and innovative new products. We routinely seek and obtain intellectual property protection in the U.S. and in many foreign jurisdictions. However, there can be no assurance that applications or registrations will be granted, that registrations will provide adequate protection, or that they will prevent imitation, infringement or other unauthorized use. In certain countries, intellectual property laws may offer weaker protection than in the U.S. Counterfeiting, piracy, or unauthorized use of our intellectual property by third parties could adversely affect our revenue, dilute the value of our brands, and harm our competitive position and results of operations.
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Third parties may challenge our rights, assert ownership of similar trademarks or other intellectual property, or claim that we infringe or misappropriate their intellectual property rights. These disputes may lead to unfavorable outcomes, including costly litigation, licensing obligations, royalty payments, settlements, damages, injunctions, or the need to rebrand or discontinue our products. Further, the rapid pace of technological innovation may diminish the value or relevance of certain intellectual property. Any of these risks could materially and adversely affect our business, financial condition and results of operation.
Our ability to compete favorably in our highly competitive segment of the retail industry could impact our results.
The retail industry is highly competitive, especially with respect to the intimates, apparel and beauty markets. We compete for sales with a broad range of other retailers, including individual and chain specialty stores, department stores and discount retailers. In addition to the traditional store-based retailers, we also compete with direct marketers and retailers that sell similar merchandise and target customers through digital channels. Brand image, marketing, design, price, service, assortment, quality, image presentation and fulfillment are all competitive factors in both the store-based and digital channels.
Some of our competitors may have greater financial, marketing and other resources available to them or use their resources more effectively. Trends across our product categories may favor our competitors, including the shift in customer preference to digital and omnichannel shopping. We rely to a greater degree than some of our competitors on physical locations in shopping malls and retail centers, so declines in traffic to such locations may affect us more significantly than our competitors. Some of our competitors sell their products in stores that are located in the same shopping malls and retail centers as our stores. In addition to competing for sales, we compete for favorable store locations and lease terms.
Increased competition or declines in mall or online website traffic could result in reduced sales, increased promotional activity, increased marketing expenditures, and loss of pricing power and market share, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.
Our ability to manage the life cycle of our brands and to remain current with fashion trends and launch new merchandise and product lines successfully could impact the image and value of our brands.
Our success depends in part on our ability to effectively manage the life cycle of our brands and to anticipate and respond to changing fashion preferences and consumer demands and to translate market trends into attractive, salable product offerings in a timely and effective manner. We are dependent on certain product categories, including bras, panties and other intimates products, and a decline in consumer demand in these product categories could negatively affect our results of operations, financial condition and cash flows. We may choose to launch new product categories or brands, and our ability to successfully introduce new merchandise, product lines, and brands will impact our results of operations and the image and value of our brands. Customer demands and fashion trends change rapidly. If we are unable to successfully anticipate, identify and react to changing styles or trends or we misjudge the market for our products or any new product lines or brands, our sales may decrease, potentially resulting in significant amounts of inventory. In response, we may be to increase our marketing and promotional activity. These risks could have a material effect on the value of our brands and our reputation as well as our results of operations, financial condition and cash flows.
We may be impacted by our ability to adequately source materials and produce, distribute and sell merchandise on a global basis.
We source materials and produce merchandise within the U.S. and internationally. We distribute merchandise globally to our partners, stores and customers in approximately 70 countries. Many of our imports and exports are subject to a variety of customs regulations and international trade arrangements, including existing or potential increases in or new duties, tariffs or safeguard quotas. We also compete with other companies for production facilities.
We face a variety of risks associated with doing business on a global basis. For example:
• political instability, wars and geopolitical conflicts, environmental hazards or natural disasters, which could negatively affect international economies, U.S. and global trade policy, financial markets, supply chain operations and business activity;
• significant health hazards, epidemics or pandemics, which could result in closed factories, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in affected areas;
• imposition or threatened imposition of new or increased trade duties, sanctions, tariffs or taxes and other charges on imports or exports;
• evolving, new or complex legal and regulatory matters;
• volatility in currency exchange rates and interest rates;
• local business practice and political issues, including issues relating to compliance with domestic or international labor standards, which may result in adverse publicity or threatened or actual adverse consumer actions, including boycotts;
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• delays or disruptions in shipping and transportation and related pricing impacts;
• disruption due to labor disputes; and
• changing expectations regarding product safety due to new legislation or other factors.
We also rely on third-party transportation providers for substantially all of our product shipments, including shipments to and from our distribution centers, to our stores and to our customers. Our utilization of these delivery services is subject to risks, including increases in labor costs and fuel prices, which may increase our shipping costs, and associate strikes and inclement weather, which may impact our transportation providers’ ability to provide delivery services that adequately meet our shipping needs. Further, the growth in demand for online shopping has led to increased pressure on the capacity of our fulfillment network. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
We rely on a number of production and distribution facilities located in the same vicinity, making our business susceptible to local and regional disruptions or adverse conditions.
A significant portion of our intimates and apparel products are produced in Southeast Asia. In addition, most of the production and distribution of our beauty products occurs in close proximity to our headquarters in central Ohio. Due to the geographic concentration of our production and distribution facilities, our operations are susceptible to local and regional factors, such as accidents, system failures, economic conditions, extreme weather and natural disasters, demographic and population changes, and other unforeseen or uncontrollable events and circumstances. Any significant interruption or adverse impact to the operations of these facilities could lead to inventory shortages, supply chain or fulfillment disruptions or increased costs, which could have a material adverse effect on our results of operations, financial condition and cash flows.
We may be impacted by our vendors’ ability to manufacture and deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations.
Third-party vendors produce the vast majority of our products. Factors outside our control, such as production or shipping delays or product quality problems, could disrupt merchandise deliveries and result in lost sales, cancellation charges or excessive markdowns. In addition, quality problems could result in product liability litigation or a widespread product recall that may negatively impact our reputation, sales and profitability. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertions could adversely impact our reputation with existing and potential customers and the image and value of our brands.
Our business could also suffer if our third-party vendors fail to comply with our guidelines and policies or applicable laws, regulations or ethical standards. The violation of our guidelines and policies or labor, environmental or other laws by our third-party vendors, or the divergence of a third-party vendor’s or partner’s labor or environmental practices from those generally accepted as ethical or appropriate, could damage our reputation, result in increased costs or liabilities, or disrupt the shipment of finished products to us. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Our results may be affected by fluctuations in freight, product input and energy costs, including those caused by inflation.
Product input costs, including freight, labor and raw materials, fluctuate. Fluctuations in the price and availability of freight, labor and raw materials may result in an increase in our production costs. Increases in the cost of shipping, shipping materials or other order fulfillment logistics may affect the cost of our order fulfillment operations. Inflation can also have an adverse impact on us because increasing costs of materials and labor may adversely impact our profit margins, especially if we are not able to, or elect not to, pass these increases on to our customers. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Energy costs may fluctuate as a result of inflation and other factors, including geopolitical conflicts and related economic conditions and sanctions. These fluctuations may result in an increase in our transportation costs for distribution, utility costs for our retail stores and costs to purchase products from our manufacturers. A rise in energy costs could adversely affect consumer spending and demand for our products and increase our operating costs, both of which could have a material adverse effect on our results of operations, financial condition and cash flows.
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Climate change and legal, regulatory and market responses to climate change and other sustainability-related matters may adversely impact our business.
There is concern that a permanent rise in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere has caused and will continue to cause significant changes in weather patterns around the globe, an increase in the frequency, severity and duration of extreme weather conditions and natural disasters, and water scarcity and poor water quality. These events could adversely impact the cultivation of cotton, which is a key resource in the production of our products, disrupt the operation of our supply chain, increase our production costs, and impact consumer behavior. These events could also compound adverse economic conditions and reduce consumer confidence and discretionary spending. As a result, the effects of climate change could have a material adverse effect on our results of operations, financial condition and cash flows.
In many jurisdictions, governments are considering or enacting legislation and regulations to reduce or mitigate the impacts of climate change. If we or our suppliers are required to comply with these laws and regulations, we may experience increases in energy, production, transportation and raw materials costs, capital expenditures, insurance premiums and deductibles, and compliance-related costs, which could adversely impact our results of operation. Inconsistency of legislation and regulations among jurisdictions and increasing enforcement measures may also affect the costs of compliance. Any assessment of the potential impact of future climate change legislation, regulations or industry standards, as well as any international treaties and accords, is uncertain given the wide scope of potential regulatory change in the countries in which we operate. Any failure on our part to comply with regulations related to climate change and sustainability could lead to adverse consumer actions and investment decisions by investors, as well as expose us to government enforcement and private litigation.
Execution of our sustainability-related initiatives and achievement of our sustainability-related goals is subject to risks and uncertainties, many of which are outside our control. Further, there is risk associated with conflicting expectations from different stakeholder groups regarding climate change and other sustainability-related matters. We may not be able to meet the diverse expectations of all our stakeholders, which could harm our reputation and reduce customer demand for our products. Further, we may not be successful in executing our sustainability-related initiatives or achieving our sustainability-related goals and certain of our stakeholders may not agree with our goals or strategies. Any perception, whether or not valid, that we have failed to achieve our goals, or to act responsibly with respect to such matters or to comply with legal or regulatory requirements regarding climate change and other sustainability-related matters could result in adverse publicity and adversely affect our business, reputation and results of operations.
Our ability to adequately protect our assets from loss and theft could have an adverse effect on our results of operations, financial condition and cash flows.
Our assets are subject to loss, including those caused by illegal or unethical conduct by associates, customers, vendors or unaffiliated third parties, natural disasters and organized retail theft. We have experienced inventory shrinkage due to theft, and we cannot assure that incidences of loss and theft will decrease in the future or that the measures we are taking will effectively reduce these losses. Higher rates of loss or increased security costs to combat theft could have a material adverse effect on our results of operations, financial condition and cash flows.
We self-insure certain risks and may be impacted by unfavorable claims experience.
We are self-insured for various types of insurable risks including associate medical benefits, workers’ compensation, property, general liability and automobile up to certain stop-loss limits. Claims are difficult to predict and may be volatile. Any adverse claims experience could have a material adverse effect on our results of operations, financial condition and cash flows.
We rely on our and our third-party service providers’ ability to implement and sustain information technology systems and to protect associated data and system availability.
Our success depends in part on the secure and uninterrupted performance of our and our third-party services providers’ and vendors’ information technology systems. Our information technology systems, as well as those of our service providers and vendors, are vulnerable to damage, interruption or breach from a variety of sources, including cyberattacks, ransomware attacks, telecommunication failures, malicious human acts and natural disasters. Moreover, despite protective measures, some of our systems, e-commerce environments, and servers, and those of our service providers and vendors, are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Such incidents could our operations, including our ability to sell and deliver products, and lead to or in our supply chain. In May 2025, we experienced a security involving our information technology systems that the operation of our website for several days and impacted our fiscal 2025 net sales by approximately $20 million and operating income by approximately $14 million.
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These types of problems could result in an actual or perceived breach of confidential customer, operational, financial, employee or other important information (including personal information), which could result in damage to our reputation, costly litigation, customer complaints, negative publicity, breach notification obligations, regulatory or administrative sanctions, inquiries, orders or investigations, indemnity obligations, damages for contract breach or penalties for violations of applicable laws or regulations. The increased use of artificial intelligence, smartphones, tablets and other mobile devices may also heighten these and other operational risks. Unanticipated or uncontrollable or events may cause in, or access to, our and our third-party service providers’ and vendors’ information technology systems. Sustained or repeated system that our ability to process orders and deliver products to our customers and stores, impact our customers’ ability to access our websites, or confidential customer, operational, financial or other important information (including personal information) could have a material effect on our results of operations, financial condition and cash flows.
In addition, from time to time, we make hardware, software and code modifications and upgrades to our information technology systems, such as replacing existing systems with successor systems, making changes to existing systems or acquiring new systems with new functionality. We are subject to risks associated with replacing and modifying our information technology systems, including risks relative to cybersecurity, data integrity and system disruptions. Information technology system disruptions or data corruption, if not anticipated and appropriately mitigated, could have a material adverse effect on our operations, financial condition and cash flows.
In addition to our own systems, networks and databases, we use third-party service providers to store, transmit and otherwise process certain of this information on our behalf, and our third-party service providers are subject to similar cybersecurity risks. Due to applicable laws and regulations or contractual obligations, we may be held responsible for any cybersecurity incident attributed to our service providers as they relate to the information we share with them or to which they are granted access. Such an event could have a material adverse effect on our operations, financial condition and cash flows.
Any significant cybersecurity compromise or breach, including with respect to customer, associate, third-party or company information, could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.
In the operation of our business, we collect, use, transmit and otherwise process a large volume of personal and other confidential, proprietary and sensitive information. Information systems are susceptible to an increasing threat of constantly evolving cybersecurity risks. These risks may be heightened by the increasing presence of AI and related technologies, including the use of AI by threat actors to develop sophisticated attacks including deepfakes and social engineering, and geopolitical conflicts. Any significant cybersecurity incident or breach, media reports about such an incident, whether accurate or not, or our failure to make adequate or timely disclosures to the public or governmental agencies following any such event, whether due to delayed discovery or a failure to follow existing protocols, could significantly damage our reputation with our customers, associates, investors and other third parties, cause the disclosure of personal, confidential, proprietary or sensitive customer, associate, third-party or company information, cause to our operations and to our management, cause our customers to stop shopping with us and result in significant legal, regulatory and financial liabilities and revenues.
In May 2025, we experienced a security incident involving our information technology systems that disrupted the operation of our website for several days and negatively impacted our fiscal 2025 net sales by approximately $20 million and operating income by approximately $14 million. We immediately enacted our response protocols and the incident has been resolved. However, there is no guarantee that the measures we have implemented to protect our information systems are adequate to safeguard against all cybersecurity threats. We may be vulnerable to targeted or random attacks on our systems that could lead to security breaches, phishing attacks, denial of service attacks, acts of vandalism, computer viruses, malware, ransomware, misplaced or lost data, programming and human errors or similar events. Our systems and facilities are also subject to compromise from internal , such as theft, , access or other actions by employees, third-party service providers and other third parties with otherwise legitimate access to our systems, website or facilities. These risks may be heightened as a result of remote or hybrid work policies and technologies. Furthermore, the methods of and change frequently, are increasingly complex and sophisticated, and can originate from a wide variety of sources, including nation-state actors. We may not be to anticipate, detect, appropriately react and respond to, or implement preventative measures all cybersecurity . Cybersecurity could have a material effect on our reputation, results of operation, financial condition and cash flows.
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We may be required to expend significant capital and other resources to protect against, respond to, and recover from any potential, attempted, existing or future cybersecurity incidents. As cybersecurity incidents continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate and remediate any information security vulnerabilities. In addition, our remediation efforts may not be successful, or may not be completed in a timely manner. While we currently maintain cybersecurity insurance, such insurance may not be sufficient in type or amount to cover us against claims related to breaches, failures or other cybersecurity incidents, and we cannot be certain that cybersecurity insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not coverage as to any future claim. The to implement, maintain and upgrade adequate safeguards and maintain sufficient cybersecurity insurance could have a material effect on our results of operations, financial condition and cash flows. Moreover, there could be public announcements regarding any cybersecurity and any steps we take to respond to or remediate such , and if securities analysts or investors perceive these announcements to be , it could have an effect on the price of our common stock.
Changes in laws, regulations or technology platform rules relating to data privacy and security, or any actual or perceived failure by us to comply with such laws and regulations or related contractual or other obligations, could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.
We are, and may increasingly become, subject to various laws, regulations and industry standards, as well as contractual obligations, relating to data privacy and security. The regulatory environment related to data privacy and security is increasingly rigorous, with new and constantly changing requirements applicable to our business. Any failure by us to comply with such laws and regulations could have a material adverse effect on our results of operations, financial condition and cash flows.
In the U.S., various federal and state regulators, including governmental agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission, have adopted, or are considering adopting, laws and regulations concerning personal information and data security and have prioritized privacy and information security violations for enforcement actions. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts. Changes to state or federal laws to which we are or become subject may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs or changes in business practices and policies. We are also subject to international laws, regulations and standards in many jurisdictions in which we operate, which apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information, such as the E.U. General Data Protection Regulation (“GDPR”).
These evolving compliance and operational requirements impose costs and may require us to modify our data processing practices and policies, implement additional protection technologies or divert attention and resources from other initiatives. Any failure or perceived failure by us to comply with any applicable federal, state or similar foreign laws and regulations relating to data privacy and security could result in damage to our reputation, proceedings or litigation by governmental agencies or customers, including class action privacy litigation, which could subject us to significant fines, sanctions, awards, penalties or judgments. Any of these risks could have a material adverse effect on our results of operations, financial condition and cash flows.
Shareholder activism could cause us to incur significant expense, hinder execution of our business strategy and impact our stock price.
Shareholder activism, which can take many forms and arise in a variety of situations, could result in substantial costs and divert management’s and our Board of Directors’ (“Board”) attention and other resources away from execution of our business operations. Additionally, shareholder activism could give rise to perceived uncertainties as to our future prospects and ability to execute our long-term strategic growth plan, adversely affect our relationships with our associates, customers or service providers and make it more difficult to attract and retain talented associates. We may be required to incur significant fees and other expenses related to activist shareholder matters, including for third-party advisors. A proxy contest for the election of our directors would require us to incur significant legal and advisory fees and proxy solicitation expenses and require significant time and attention by our management and Board. Our results of operations and stock price could be adversely affected by shareholder activism activity.
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We may be adversely impacted by our ability to comply with legal and regulatory requirements.
We are subject to numerous legal and regulatory requirements, including the Sarbanes-Oxley Act of 2002, the U.S. Foreign Corrupt Practices Act (the “FCPA”), the SEC rules and the NYSE listing standards, among others. Our associates, subcontractors, vendors, licensees, franchisees, joint venture partners, and other third parties could take actions or omissions that violate these foreign and domestic laws and regulations. Any violations of such laws or regulations could have an adverse effect on our reputation, the market price of our common stock, and our results of operations, financial condition and cash flows.
It can be difficult to comply with sometimes conflicting regulations in local, national or foreign jurisdictions, as well as new or changing laws and regulations. Changes in laws could make operating our business more expensive or require us to change the way we operate. We may not be successful in managing legal and regulatory changes impacting our business, and our responses to changes in the law could be costly and may negatively impact our operations. In addition, operations in foreign jurisdictions and partnerships or other arrangements with foreign companies could lead to risks related to, among other things, increased exposure to foreign exchange rate changes, government price control, repatriation of profits and liabilities related to the FCPA.
We may be adversely impacted by certain compliance or legal matters.
We, along with third parties we do business with, are subject to complex compliance requirements and litigation risks. Legal actions filed against us from time to time may include commercial, breach of contract, tort, intellectual property, customer, employment, wage and hour, data privacy, securities, anti-corruption and other claims, including purported class action lawsuits. The cost of defending against these types of claims or the ultimate resolution of such claims, whether by settlement or adverse court decision, may harm our reputation and results of operations. Further, potential claimants may be encouraged to bring suits based on a settlement from us or adverse court decisions against us. We cannot assess the likelihood that we will receive such or the outcome of any such , but if outcomes are , it could have a material effect on our reputation, results of operations, financial condition and cash flows.
We may be impacted by changes in taxation, trade policy and other regulatory requirements.
We are subject to income tax in local, federal and foreign jurisdictions. In addition, our products are subject to import and excise duties and sales or value-added taxes in many jurisdictions. We are also subject to the examination of our tax returns and other tax matters by the Internal Revenue Service (“IRS”) and other tax authorities and governmental bodies. There can be no assurance as to the outcome of these examinations. Changes in tax legislation or regulation, including increases in tax rates, tariffs and duties, or adverse outcomes of tax examinations could have a material adverse effect on our results of operations, financial condition and cash flows.
There is increased uncertainty with respect to tax policy and trade relations between the U.S. and other countries. For example, the Organization for Economic Co-operation and Development (“OECD”) released a global tax framework imposing a 15% minimum tax on multinational enterprises, which commenced for some jurisdictions beginning January 1, 2024. Although the U.S. has not adopted the OECD tax regime, these rules still apply to U.S. companies with non-U.S. operations and has and may continue to increase our tax compliance obligations. In January 2026, the OECD announced a proposed side-by-side arrangement relating to the application of these rules to U.S. headquartered companies, intended to be applicable for fiscal years beginning on or after January 1, 2026. The full impact of this agreement remains uncertain and will depend on further guidance.
Additionally in 2025, the U.S. presidential administration imposed tariffs on certain countries. On February 20, 2026, the U.S. Supreme Court struck down certain tariffs imposed under the IEEPA. Following the Supreme Court’s decision, the U.S. administration announced a new 10% global tariff under Section 122 of the Trade Act of 1974, subject to certain exceptions. It is unclear at this time what impact these decisions will have on our results of operations, including whether we will be able to obtain refunds for amounts previously paid for the IEEPA tariffs, any changes in tariff levels, or the imposition of new tariffs through other means. The tariff actions by the U.S. may result in a decrease of global trade volumes, create administrative burdens, and continue to negatively impact our profit margin and operating income. We will continue to monitor legal and regulatory changes in the many jurisdictions in which we operate. We also continue to monitor the geopolitical tensions that may impact our business or results of operations. Developments in tax policy or trade relations, such as the imposition or threatened imposition of new or increased tariffs on imported products, and actions taken in retaliation of the imposition of such new or increased tariffs, could have a material adverse effect on our results of operations, financial condition and cash flows.
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Risks Relating to Our Indebtedness
We have debt obligations that could restrict our business and adversely impact our results of operations, financial condition and cash flows.
We have a term loan facility, a senior secured asset-based revolving credit facility and have issued senior notes. The associated debt agreements contain certain affirmative and negative covenants, including maintenance of a consolidated coverage ratio, a consolidated total leverage ratio, a fixed charge coverage ratio, and a debt to earnings before interest, income taxes, depreciation, amortization and rent ratio. If we fail to comply with any covenants, the lenders may terminate their obligation to make advances to us and declare any outstanding obligations immediately due and payable. If our cash flow from operations declines, we may be unable to service or refinance our debt. Further, amounts borrowed under our term loan facility and senior secured asset-based revolving credit facility are subject to variable interest rates. Consequently, the current high interest rate environment results in higher borrowing costs for us and may limit our ability to refinance existing debt or obtain additional debt on favorable terms or at all.
Our debt obligations could restrict our future business strategies and have significant consequences on our future operations, including:
• Making it more difficult for us to meet our payment and other obligations under our outstanding debt;
• Resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which could result in our debt becoming immediately due and payable;
• Reducing the availability of our cash flow to fund working capital, capital expenditures, investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;
• Limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy; and
• Placing us at a competitive disadvantage compared to our competitors that may have less debt or are less leveraged.
Any of the above-listed factors could have a material adverse effect on our business, financial condition and results of operations.
We may incur substantial additional indebtedness in the future. Any future indenture or credit agreements that we may enter into may include restrictive covenants that restrict or limit our ability to, among other things, incur additional indebtedness, pay dividends, make certain investments, sell certain assets and enter into certain strategic transactions, including mergers and acquisitions. These covenants and restrictions could affect our ability to operate our business and may limit our ability to react to market conditions or take advantage of potential business opportunities as they arise.
Our ability to maintain our credit ratings could affect our ability to access capital and could increase our interest expense.
Any downgrades in our credit ratings by the major independent rating agencies could increase the cost of borrowing under any indebtedness we may incur. There can be no assurance that we will be able to maintain our credit ratings, and any actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under review for a downgrade, may have a negative impact on our liquidity, capital position and access to capital markets.
Risks Relating to Our Common Stock
The price of our common stock has fluctuated significantly and may continue to fluctuate significantly.
The market price of our common stock has fluctuated significantly, and may continue to fluctuate significantly due to a number of factors, many of which are beyond our control, including:
• Fluctuations in our quarterly or annual earnings results and financial projections or those of other companies in our industry;
• Failures of our operating results to meet our financial projections, the estimates of securities analysts or the expectations of our stockholders, or changes by securities analysts in their estimates of our future earnings;
• Announcements by us or our competitors;
• Changes in laws or regulations which affect us;
• General economic, industry and stock market conditions;
• Purchases and sales of large blocks of our common stock; and
• The other factors described in these “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
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These and other factors may cause the market price and demand for our common stock to fluctuate, which may limit or prevent stockholders from selling their shares of our common stock and may otherwise negatively affect the liquidity of our common stock. In addition, when the market price of a stock has been volatile, holders of that stock may institute securities class action litigation against the company that issued the stock. If our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management away from our business.
The trading market for our common stock may also be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of the Company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline.
Provisions in our Certificate of Incorporation and Bylaws, our Rights Plan, and certain provisions of Delaware law could delay or prevent a change in control of the Company.
The existence of certain provisions of our amended and restated certificate of incorporation (“Certificate of Incorporation”) and second amended and restated bylaws (“Bylaws”), our Rights Plan (defined below), and Delaware law could discourage, delay or prevent a change in control of the Company that stockholders may consider favorable. These include provisions:
• Providing the right to our Board to issue one or more classes or series of preferred stock without stockholder approval;
• Authorizing a large number of shares of common stock that are not yet issued, which would allow our Board to issue shares to persons friendly to current management, thereby protecting the continuity of our Board and management, or which could be used to dilute the stock ownership of persons seeking to obtain control of us;
• Prohibiting stockholders from taking action by written consent; and
• Establishing advance notice and other requirements for nominations of candidates for election to our Board or for proposing matters that can be acted on by stockholders at our stockholder meetings.
In response to the substantial accumulation of shares of our common stock by BBRC International Pte Limited, the Company adopted a limited-duration shareholder rights plan (the “Rights Plan”), effective May 20, 2025, to protect the best interests of all our stockholders. The Rights Plan disincentivizes any person (or any persons acting as a group) from accumulating more than 15% (or 20% for certain passive investors) or more of our outstanding common stock. The Rights Plan has a one-year term, expiring on May 18, 2026.
We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our Board and by providing our Board with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions apply even if a takeover offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our Board determines is not in our and our stockholders’ best interests.
Our Bylaws designate Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Pursuant to our Bylaws, unless we consent in writing to the selection of an alternative forum, a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware) shall be the sole and exclusive forum for:
• any derivative action or proceeding brought on our behalf;
• any action asserting a claim of breach of a fiduciary duty;
• any action asserting a claim against us or any of our directors or officers or other employees or agents arising pursuant to any provision of the Delaware General Corporation Law or our Certificate of Incorporation or Bylaws;
• any action asserting a claim related to or involving us that is governed by the internal affairs doctrine; or
• any action asserting an “internal corporate claim” as that term is defined in Section 115 of the Delaware General Corporation Law.
These exclusive forum provisions will apply to all covered actions, including any covered action in which the plaintiff chooses to assert a claim or claims under federal law in addition to a claim or claims under Delaware law. These exclusive forum provisions, however, will not apply to actions asserting only federal law claims under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, regardless of whether the state courts in the State of Delaware have jurisdiction over those claims. The forum selection clause in our Bylaws may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us, result in increased costs for investors to bring a claim and affect the market price of our common stock.
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Your percentage ownership in the Company may be diluted in the future.
Your percentage ownership in the Company may be diluted due to issuances of common stock or other securities by us for acquisitions, strategic investments, capital market transactions or otherwise, including awards of common stock that we may grant to our directors, officers, employees and other service providers. From time to time, we grant awards of common stock to our employees and directors under our compensation and benefits plans. These awards have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.
In addition, our Certificate of Incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, powers, preferences and relative, participating, optional and other rights, and such qualifications, limitations or restrictions as our Board may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant holders of preferred stock the right to elect some number of our directors or the right to veto specified transactions. Similarly, the repurchase or redemption rights or dividend, distribution or liquidation preferences we could assign to holders of preferred stock could affect the value of our common stock.
Our common stock is and will be subordinate to all of our current and future indebtedness and any preferred stock, and effectively subordinate to all indebtedness and preferred equity claims against our subsidiaries.
Shares of our common stock are common equity interests in us and, as such, will rank junior to all our current and future indebtedness and other liabilities. Additionally, holders of our common stock may become subject to the prior dividend and liquidation rights of holders of any class or series of preferred stock that our Board may designate and issue without any action on the part of the holders of our common stock. Furthermore, our right to participate in a distribution of assets upon any of our subsidiaries’ liquidation or reorganization is subject to the prior claims of that subsidiary’s creditors and preferred stockholders, if any.
