Item 1A.
Risk Factors:
An investment in our common stock involves numerous types of risks.
You
should carefully consider
the
following
risk
factors,
addition
the
other
information
contained
this
report,
including
the
disclosures
under
“Forward-looking
Information”
above
evaluating
our
Company
and
any
potential
investment
our
common
stock.
any
the
following
risks
uncertainties
occur
persist,
our
business, financial condition and
operating results could
be materially and
adversely affected, the
trading
price
our
common
stock
could
decline,
and
you
could
lose
all
part
your
investment
our
common
stock.
The
risks
and
uncertainties
described
this
section
are
not
the
only
ones
facing
Additional risks
and uncertainties
not presently
known to
that we
currently deem
immaterial
may
also materially
and adversely
affect our
business, operating results,
financial condition,
and value
of our
common
stock.
These
disclosures
reflect
the
Company’s
beliefs
and
opinions
factors
that
could
materially
and
adversely
affect
the
Company
and
its
securities
the
future.
References
particular
events or contingencies are provided as
examples only and should not be
interpreted as a complete listing
as any
representation about
whether or
not such
events or
contingencies have
occurred in
the past
may occur in the future.
Risks Relating to Our Business:
Because we source a significant portion of our merchandise directly
and indirectly from overseas,
we are subject to risks associated with increased costs, changes, disruptions
or other problems
affecting the Company’s merchandise supply chain, risks associated with trade policies, including
costs and uncertainties as the result of actual or threatened tariffs, the risks of conducting
international operations and risks that affect the prevailing economic, social,
geopolitical, public
health and other conditions in the areas from which we source
merchandise. These risks have and
could continue to materially and adversely affect the Company’s business, results of operations
and financial condition.
not
own
operate
any
manufacturing
facilities.
result,
the
continued
success
our
operations
tied
our
timely
receipt
quality
merchandise
from
third
party
manufacturers
reasonable
cost.
significant
amount
our
merchandise
manufactured
overseas,
principally
Southeast
Asia
and
Egypt.
Geopolitical
tensions,
conflicts,
sanctions,
prohibitions,
additional
actual
threatened tariffs, compliance and reporting requirements
have resulted in increased costs associated with
merchandise produced
in certain
regions. Any
new sanctions,
tariffs
and reporting
requirements enacted
in the future
may further increase our
costs associated with sourcing
products from those regions
or limit
our ability to
procure the products
we source, and
our ability to
source these products from
other regions
may be limited
or result in
increased sourcing costs.
are subject to
supply chain disruptions
affecting
transit times
and costs,
including disruptions from
issues related
to vessels
transiting the Suez
Canal and
Red Sea,
which are
being forced to
travel a
much longer distance
around the Cape
of Good
Hope due to
the hostilities in the Middle East. These
issues have and may continue to drive
up our ocean freight costs,
delay
merchandise
deliveries,
and
impact
our
ability
access
the
already
limited
supply
ocean
container shipping capacity that we require. Additionally,
we may be subject to additional
costs related to
our supply
chain such
as increased
facility fees,
fuel costs,
peak surcharges
and other
additional charges
transport
our
goods,
which
may
increase
our
costs.
also
are
subject
domestic
supply
chain
disruptions,
including
lack
domestic
intermodal
transportation
(trucks
and
drivers),
domestic
port
congestion, including increased dwell
times for incoming container
ships, lack of container
yard capacity
and lack of
available drayage from
the ports
and other conditions
that impact our
domestic supply chain.
These
supply
chain
risks
have
and
may
continue
result
both
higher
costs
transport
our
merchandise and delayed merchandise arrivals to
our stores, which adversely affect
our ability to sell this
merchandise and increase markdowns of it.
directly import
some of
this merchandise
and indirectly
import the
remaining merchandise
from
domestic vendors who acquire the merchandise from foreign
sources. Further, our third-party
vendors are
dependent
materials
primarily
sourced
from
China,
and
our
costs
for
these
materials
are
likely
increase as
a result
of newly implemented
tariffs on
Chinese products. We
are subject
to numerous
risks
that can
cause significant
delays or
interruptions in
the supply
of our
merchandise or
increase our
costs.
These risks include political unrest,
labor disputes, terrorism, war,
public health threats, including but
not
limited
communicable diseases
(such
COVID-19 or
other
pandemics), financial
other
forms
instability or
other events
resulting in
the
disruption of
trade
from countries
affecting our
supply chain,
increased
security
requirements
for
imported
merchandise,
the
imposition
changes
laws,
regulations or
changes in
duties, quotas, tariffs,
taxes or
governmental policies regarding
or responses
these matters
or other
factors affecting
the availability
or cost
of imports.
are unable
to pass
these
increased
sourcing
costs
onto
our
vendors
our
customers,
may
adversely
impact
our
results
operations.
Increased product costs, freight costs, wage increases and operating
costs due to inflation and
other factors, as well as limitations in our ability to offset these cost increases by increasing
the
retail prices of our products or otherwise, have and may continue to adversely affect our business,
margins, results of operations and financial condition.
Our
ability
raise
retail
prices
response
these
cost
increases
limited,
part
due
our
customers’
unwillingness
pay
higher
prices
for
discretionary
items
light
actual
perceived
effects of pricing pressure on consumer confidence,
limited customer disposable income to purchase our
products,
sentiment
financial
outlook.
Moreover,
the
persistence
worsening
these
conditions
could
also lead
our customers
to reduce
their amount
current discretionary
spending on
our
products
even
the
absence
price
increases,
which
could
erode
our
sales
volume
and
adversely
affect
our
results of operations and financial condition.
Any actual or perceived deterioration in the conditions that drive
consumer confidence and
spending have and may continue to materially and adversely affect consumer demand
for our
apparel and accessories and our results of operations.
Consumer
spending
habits,
including
spending
for
our
apparel
and
accessories,
are
affected
among other
things, prevailing
social, economic,
political and
public health
conditions and
uncertainties
(such
matters
under
debate
the
from
time
time
regarding
budgetary,
spending
and
tax
policies),
levels
employment, fuel
costs,
inflation,
interest
rates,
energy
and
food
costs,
salaries
and
wage rates
and other
sources of
income, tax
rates, home
values, consumer
net worth,
the availability
consumer
credit,
consumer
confidence
and
consumer
perceptions
adverse
changes
trends
affecting any of these conditions. Any perception that these conditions may be worsening or continuing to
trend negatively
may significantly
weaken many
these drivers
of consumer
spending habits.
Adverse
perceptions of
these conditions
uncertainties regarding
them also
generally cause
consumers to
defer
purchases
discretionary
items,
such
our
merchandise,
purchase
cheaper
alternatives
our
merchandise, all
of which
may also
adversely affect
our
net sales
and results
of operations.
In addition,
numerous events,
whether or
not
related to
actual
economic conditions,
such
as downturns
the
stock
markets,
acts
war
terrorism,
geopolitical
uncertainty
unrest
natural
disasters,
outbreaks
disease
similar
events,
may
also
dampen
consumer
confidence,
and
accordingly,
lead
reduced
consumer spending.
Any of
these events
could have
a material
adverse effect
on our
business, results
operations and financial condition.
Fluctuations in the price, availability and quality of inventory have and
may continue to result in
higher cost of goods, which the Company may not be able to pass on to
its customers.
The
price
and
availability
raw
materials
may
impacted
demand
and
supply
fluctuations,
regulation, tariffs, weather and
crop yields, currency value fluctuations, inflation, as
well as other factors.
Additionally,
manufacturers have and
may continue to
have increases in
other manufacturing costs,
such
transportation,
labor
and
benefit
costs.
These
increases
production
costs
may
result
higher
merchandise costs to the Company.
Due to the Company’s
limited flexibility in price point, the
Company
may
not
able
pass
those
cost
increases
the
consumer,
which
could
have
material
adverse
effect on our margins, results of operations and financial condition.
Our inability to effectively manage inventory has impacted and may continue
to negatively impact
our gross margin and our overall results of operations.
Factors
affecting
sales
include
fashion
trends,
customer
preferences,
calendar
and
holiday
shifts,
competition,
weather,
supply
chain
issues,
actual
potential
public
health
threats
and
economic
conditions, including
but not
limited to
continued high
interest rates
and persistent
inflation. In
addition,
merchandise
must
ordered
well
advance
the
applicable
selling
season
and
before
trends
are
confirmed
sales.
When
are
not
able
accurately predict
customers’ preferences
for
our
fashion
items, we may have too
much inventory, which
may cause excessive markdowns. When we
are unable to
accurately
predict
demand
for
our
merchandise,
may
end
with
inventory
shortages,
resulting
missed
sales.
Our
inability
effectively
manage
inventory
may
continue
adversely
affect
our
gross
margin and results of operations.
The competitive hiring environment and our failure to attract, train,
and retain skilled personnel
has and could continue to adversely affect our business and our financial condition.
Like most
retailers, we experience
significant associate turnover
rates, particularly among
store sales
associates
and
managers.
Moreover,
attracting
and
retaining
skilled
personnel
has
been
and
could
continue
challenging.
offset
this
turnover
well
support
new
store
growth,
must
continually attract, hire and train new store associates to meet our staffing needs. A
significant increase in
the
turnover
rate
among
our
store
sales
associates
and
managers
would
increase
our
recruiting
and
training costs, as well
as possibly cause a
decrease in our store
operating efficiency and productivity.
compete
for
qualified
store
associates,
well
experienced
management
personnel,
with
other
companies in our industry or other industries, many of whom have greater financial
resources than we do.
addition,
depend
key
management
personnel
oversee
the
operational
divisions
the
Company
for
the
support
our
existing
business
and
future
expansion.
The
success
executing
our
business strategy
depends in
large part
on retaining
key management.
compete for
key management
personnel
with
other
retailers, and
our
inability
attract
and
retain
qualified personnel
could
limit
our
ability to grow.
are
unable
retain
our
key management
and
store
associates or
attract, train,
retain
other
skilled
personnel in
the
future,
may not
able
service
our
customers effectively
execute
our
business strategy, which could adversely affect our business, operating results and financial condition.
The currently
competitive environment
for hiring
new associates
and retaining
existing associates
causing
wages
increase,
which
has
affected
and
could
continue
adversely
affect
our
business,
margins, operating results and financial condition if we cannot offset these cost increases.
Our ability to attract consumers and grow our revenues is dependent
on the success of our store
location strategy and our ability to successfully open new stores as planned.
Our sales are
dependent in part
on the location
of our stores
in shopping centers
and malls where
believe
our
consumers
and
potential
consumers
shop.
addition,
our
ability
grow
our
revenues
has
been substantially dependent on our ability to secure space for and open new stores in attractive locations.
Shopping centers
and malls
where we
currently operate
existing stores
or seek
open new
stores have
been and
may continue
adversely affected
among other
things, general
economic downturns
those
particularly affecting
the
commercial real
estate industry,
the
closing of
anchor
stores, changes
tenant
mix
and
changes
customer
shopping
preferences,
including
but
not
limited
increase
preference for online
versus in-person shopping. To
take advantage of
consumer traffic and
the shopping
preferences
our
consumers,
need
maintain
and
acquire
stores
desirable
locations
where
competition for suitable
store locations is
intense. A decline
in customer popularity
of the
strip shopping
centers where we
generally locate our
stores or in
availability of space in
desirable centers and
locations,
or an increase in the cost of such desired space, has limited and could further limit our ability to open new
stores,
adversely
affecting
consumer
traffic
and
reducing
our
sales
and
net
earnings
increasing
our
operating costs.
Our ability
to open
and operate
new stores
depends on
many factors,
some of
which are
beyond our
control.
These
factors
include,
but
are
not
limited
our
ability
identify
suitable
store
locations,
negotiate acceptable lease terms, secure
necessary governmental permits and approvals and
hire and train
appropriate store
personnel. In
addition, our
continued expansion
into new
regions of
the country
where
have
not
done
business
before
may
present
new
challenges
competition,
distribution
and
merchandising as we enter these new markets. Our failure to successfully and timely
execute our plans for
opening new stores
or the failure
of these stores
to perform up
to our expectations
could adversely affect
our business, results of operations and financial condition.
Continued high interest rates have and may continue to adversely
impact our customers’
discretionary income or willingness to purchase discretionary items, which
may adversely affect
our business, margins, results of operations and financial condition.
Continued high interest rates have adversely affected our customers’ discretionary income, in part due
to increased
interest costs
associated with
credit accounts
including revolving
credit accounts,
car loans,
mortgage loans and other credit accounts. In
addition, the increased payments due to higher
interest rates,
combined
with
continued
inflationary
pressures
non-discretionary
items,
including
food,
fuel
and
shelter, reduce
our customers’ discretionary income
and their
willingness to purchase
discretionary items
such as apparel, shoes or jewelry products. Any reduction in our customers’ discretionary
spending on our
products
could
erode
our
sales
volume
and
adversely
affect
our
results
operations
and
financial
condition.
The operation of our sourcing offices in Asia presents increased operational and
legal risks.
In October 2014, we established our own sourcing offices in Asia. If our sourcing offices are unable to
successfully oversee
merchandise production
ensure that
product is
produced on
time
and
within the
Company’s
specifications,
our
business,
brand,
reputation,
costs,
results
operations
and
financial
condition could be materially and adversely affected.
In addition, the current business environment, including geopolitical issues, make operating in
certain
Asian
markets
challenging.
the
extent
explore
other
countries
source
our
product
explore
increasing
the
amount
product
sourced
from
current
countries,
may
subject
additional
increased
legal
and
operational risks
associated
with
doing
business
new
countries
increasing our
business in other countries.
Further, the activities conducted by
our sourcing offices outside the
United States subject us to foreign
operational
risks,
well
and
international
regulations
and
compliance
risks,
discussed
elsewhere
this
“Risk
Factors”
section,
particular
below
under
“Risk
Factors
Risks
Relating
Accounting
and
Legal
Matters
Our
business
operations
subject
legal
compliance
and
litigation
risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or
liabilities,
divert
our
management’s
attention
otherwise
adversely
affect
our
business,
results
operations and financial condition.”
Extreme weather, natural disasters, impacts of climate change, public health threats or similar
events have and may continue to adversely affect our sales or operations from time
to time.
Extreme
changes
weather,
natural
disasters,
physical
impacts
climate
change,
public
health
threats or
similar events
can influence
customer trends
and shopping
habits. For
example, heavy
rainfall
or other extreme weather conditions, including but
not limited to winter weather over a
prolonged period,
might
make
difficult
for
our
customers
travel
our
stores
and
thereby
reduce
our
sales
and
profitability.
Our business is
also susceptible to
unseasonable weather conditions. For
example, extended
periods of unseasonably
warm temperatures during the
winter season or
cool weather during
the summer
season can
render a
portion of
our inventory
incompatible with
those unseasonable
conditions. Reduced
sales
from extreme
prolonged unseasonable
weather
conditions
would
adversely affect
our
business.
The occurrence or
threat of extreme
weather, natural
disasters, power outages, terrorist
acts, outbreaks of
flu
other
communicable
diseases
(such
COVID-19)
other
catastrophic
events
could
reduce
customer
traffic
our
stores
and
likewise
disrupt
our
ability
conduct
operations,
which
would
materially and adversely affect us and could adversely affect our reputation and results of operations.
The inability of third-party vendors to produce goods on time and to the
Company’s specifications
may adversely affect the Company’s business, results of operations and financial condition.
Our
dependence
third-party
vendors
manufacture
and
supply
our
merchandise
subjects
numerous risks that our vendors will fail to perform as we expect. For example, the deterioration in any of
our key
vendors’ financial condition,
their failure to
ship merchandise in
a timely manner
that meets
our
specifications,
other
failures
follow
our
vendor
guidelines
comply
with
applicable
laws
and
regulations,
including
compliant
labor,
environmental
practices
and
product
safety,
could
expose
operational, quality,
competitive, reputational
and legal
risks. If
we are
not able
to timely
adequately
replace the merchandise we currently
source with merchandise produced elsewhere,
or if our vendors fail
perform as
expect,
our
business, results
operations
and
financial
condition
could
adversely
affected.
Activities
conducted
our
behalf
outside
the
United
States
further
subject
numerous
and
international
regulations
and
compliance
risks,
discussed
below
under
“Risk
Factors –
Risks Relating
to Accounting
and Legal
Matters –
Our business
operations subject
legal
compliance and litigation
risks, as well
as regulations and
regulatory enforcement priorities, which
could
result in increased costs or liabilities,
divert our management’s attention
or otherwise adversely affect our
business, results of operations and financial condition.”
Existing and increased competition in the women’s retail apparel industry may negatively impact
our business, results of operations, financial condition and
market share.
The
women’s
retail
apparel
industry
highly
competitive.
compete
primarily
with
discount
stores,
mass
merchandisers,
department
stores,
off-price
retailers,
specialty
stores
and
internet-based
retailers, many of which have substantially greater financial, marketing and other resources
than we have.
Many
our
competitors
offer
frequent
promotions
and
reduce
their
selling
prices.
some
cases,
our
competitors are
expanding into markets
in which
we have a
significant market presence.
In addition, our
competitors
also
compete
for
the
same
retail
store
space.
result
this
competition,
may
experience
pricing
pressures,
increased
marketing
expenditures,
increased
costs
open
new
stores,
well
loss
market
share,
which
could
materially
and
adversely
affect
our
business,
results
operations and financial condition.
If we are unable to anticipate, identify and respond to rapidly changing
fashion trends and
customer demands in a timely manner, our business and results of operations could materially
suffer.
Customer
tastes
and
fashion
trends,
particularly
for
women’s
apparel,
are
volatile,
tend
change
rapidly
and
cannot
predicted
with
certainty.
Our
success
depends
part
upon
our
ability
consistently anticipate, design and respond to changing merchandise trends and consumer preferences in a
timely
manner.
Accordingly,
any
failure
anticipate,
identify,
design
and
respond
changing
fashion
trends
could
adversely
affect
consumer
acceptance
our
merchandise,
which
turn
could
adversely affect our
business, results of
operations and our
image with our
customers. If we
miscalculate
either the
market for
our merchandise
or our
customers’ tastes or
purchasing habits, we
may be required
to sell a significant amount of inventory at below-average markups over
cost, or below cost, which would
adversely affect our margins and results of operations.
Adverse developments affecting the financial services industry or events or concerns
involving
liquidity, defaults or non-performance by financial institutions or transactional counterparties
could adversely affect our business, financial condition or results of operations.
Actual
events
involving limited
liquidity,
defaults,
non-performance or
other
adverse
developments
that affect
financial institutions,
transactional counterparties
or other
companies in
the financial
services
industry
the
financial
services
industry
generally,
concerns
rumors
about
any
events
these
kinds
other
similar
risks,
have
the
past
and
may
the
future
lead
sporadic
market-wide
liquidity problems
that
could adversely
affect
any of
our transactional
counterparties, such
our
merchandise vendors
and their
factors, our
landlords, our
payment processors
including credit
card, gift
card and checks, our transportation vendors and other vendors that provide services and supplies to us, are
unable to
access funds
or lending
arrangements with
such
a financial
institution, such
parties’ ability
pay their obligations
could be adversely
affected. If this
occurred we could
be adversely impacted
by not
receiving
the
product
ordered
the
payments
generated
our
sales,
not
being
able
receive
products to our distribution center or
our stores in a timely
manner or at all, or
by not being able to
retain
services
from third
parties that
require. These
impacts
may adversely
affect
our
financial condition,
results
operations
and
our
ability
execute
our
business
strategy.
Furthermore,
these
adverse
developments affecting
the
financial services
industry or
related perceptions
may negatively
impact our
customers’
discretionary
income
our
customers’
willingness
purchase
apparel,
shoes
jewelry
products. Any
reduction in
our customers’
discretionary spending
on our
products could
erode our
sales
volume and adversely affect our results of operations and financial condition.
Risks Relating to Our Information Technology, Related Systems and Cybersecurity:
A failure or disruption relating to our information technology systems could
adversely affect our
business.
rely
our
existing
information
technology
systems
for
merchandise
operations,
including
merchandise planning,
replenishment, pricing, ordering,
markdowns and
product life
cycle management.
In addition to
merchandise operations, we utilize
our information technology systems for
our distribution
processes,
well
our
financial
systems,
including
accounts
payable,
general
ledger,
accounts
receivable,
sales, banking,
inventory
and
fixed
assets. Despite
the
precautions we
take,
our
information
systems are or may be vulnerable to disruption
or failure from numerous events, including but not limited
to, natural disasters,
severe weather conditions,
power outages, technical malfunctions,
cyberattacks, acts
war
terrorism,
similar
catastrophic
events
other
causes
beyond
our
control
that
fail
anticipate. Any disruption or failure in the operation of our information technology systems, our failure to
continue
upgrade
improve
such
systems,
the
cost
associated
with
maintaining,
repairing
improving
these
systems,
could
adversely
affect
our
business,
results
operations
and
financial
condition. Modifications and/or upgrades to
our current information technology systems may also
disrupt
our operations.
A disruption or shutdown of our centralized distribution center
or transportation network could
materially and adversely affect our business and results of operations.
The distribution
of our
products is centralized
in one
distribution center in
Charlotte, North Carolina
and
distributed
through
our
network
third-party
freight
carriers.
The
merchandise
purchase
shipped directly to
our distribution center,
where it is
prepared for shipment
to the appropriate
stores and
subsequently
delivered
the
stores
our
third-party
freight
carriers.
the
distribution
center
our
third-party freight carriers were
to be shut down
or lose significant capacity
for any reason, including but
not limited to, any of the causes described above under “A failure or disruption
relating to our information
technology
systems
could
adversely
affect
our
business,”
our
operations
would
likely
seriously
disrupted. Such problems could occur as
the result of any loss,
destruction or impairment of our ability to
use
our
distribution center,
well
any broader
problem generally
affecting
the ability
ship
goods
into our distribution center
or deliver goods to
our stores. As
a result, we
could incur significantly higher
costs and longer lead
times associated with distributing our
products to our stores
during the time it
takes
for us to reopen or
replace the distribution center and/or our transportation network. Any such
occurrence
could adversely affect our business, results of operations and financial condition.
A security breach that results in unauthorized access to or disclosure
of employee, Company or
customer information or a ransomware attack could adversely affect our costs,
reputation and
results of operations, and efforts to mitigate these risks may continue to increase
our costs.
The
protection
employee,
Company
and
customer
data
critical
the
Company.
Any
security
breach, mishandling, human or programming error or other event that results in the misappropriation, loss
other
unauthorized
disclosure
employee,
Company
customer
information,
including
but
not
limited
credit
card
data
other
personally
identifiable
information,
could
severely
damage
the
Company's reputation, expose it to
remediation and other costs
and the risks of legal
proceedings, disrupt
its
operations
and
otherwise
adversely
affect
the
Company's
business
and
financial
condition.
The
security of certain of
this information also depends on
the ability of third-party
service providers, such as
those
use
process
credit
and
debit
card
payments
described
below
under
are
subject
payment-related
risks,”
properly
handle
and
protect
such
information.
Our
information
systems
and
those of our
third-party service providers are
subject to ongoing and
persistent cybersecurity threats from
those seeking unauthorized
access through means
which are
continually evolving and
may be difficult
anticipate or detect
for long periods
of time. Despite
measures the Company
takes to
protect confidential
information against
unauthorized access
or disclosure, which
measures are
ongoing and
may continue
increase
our
costs,
there
assurance
that
such
measures
will
prevent
the
compromise
such
information. If
our measures
are unsuccessful
due to
cyberattacks or
otherwise, it
could have
a material
adverse
effect
the
Company's
reputation,
business,
operating
results,
financial
condition
and
cash
flows. In addition, the Company may be subject to ransomware attacks, which if successful could
result in
disruptions
the
Company’s
operations
and
expose
remediation
and
other
costs,
risks
legal
proceedings,
damage the
Company’s
reputation
and
otherwise
adversely
affect
the
Company's business
and financial condition.
The Company’s failure to successfully operate its e-commerce websites or fulfill customer
expectations could adversely impact customer satisfaction, our reputation
and our business.
Although the
Company's e-commerce
platform provides
another channel
drive incremental
sales,
expose existing customers with
the online shopping experience
and introduce a new
customer base to the
Company,
also exposes
numerous risks.
are
subject to
potential failures
in the
efficient
and
uninterrupted
operation
our
websites,
customer
contact
center
our
distribution
center,
including
system
failures
caused
telecommunication
software
system
providers,
order
volumes
that
exceed
our
present
system
capabilities,
electrical
outages,
mechanical
problems
and
human
error.
Our
commerce
platform
may
also
expose
greater
potential
for
security
data
breaches
involving
the
unauthorized
access
disclosure
customer
information,
discussed
above
under
security
breach
that
results
unauthorized
access
disclosure
employee,
Company
customer
information or a ransomware
attack could adversely affect
our costs, reputation and
results of operations,
and efforts to
mitigate these risks
may continue to increase
our costs.” We
are also subject
to risk related
delays
failures
the
performance
third
parties,
such
shipping
companies,
including
delays
associated
with
labor
strikes
slowdowns
adverse
weather
conditions.
the
Company
does
not
successfully
meet
the
challenges
operating
e-commerce
websites
fulfilling customer
expectations,
the Company's business and sales could be adversely affected.
We are subject to payment-related risks.
accept
payments
using
variety
methods,
including
third-party
credit
cards,
“buy
now,
pay
later”
services,
our
own
branded
credit
card,
debit
cards,
gift
cards
and
physical
and
electronic
bank
checks. For
existing and future
payment methods we
offer to
our customers, we
are subject
to fraud
risk
and to additional
regulations and compliance
requirements (including obligations to
implement enhanced
authentication processes that could result in increased costs
and reduce the ease of use of
certain payment
methods). For
certain payment
methods, including
credit and
debit cards,
we pay
interchange and
other
fees,
which
have
increased
from
time
time
and
may
continue
increase
over
time,
raising
our
operating
costs
and
lowering
profitability.
rely
third-party
service
providers
for
payment
processing services,
including the
processing of
credit and
debit cards.
In each
case, it
could disrupt
our
business if these third-party service providers
become unwilling or unable to provide
these services to us.
We are also subject to payment card association operating rules, including data security rules, certification
requirements
and
rules
governing
electronic
funds
transfers,
which
could
change
reinterpreted
make it difficult
or impossible for
us to comply.
If we fail
to comply with
these rules or
requirements, or
if our data security
systems are breached or compromised,
we may be liable for
card-issuing banks’ costs
and subject
to fines
and higher transaction
fees. In addition,
we may lose
our ability to
accept credit
and
debit card payments from
our customers and
process electronic funds transfers or
facilitate other types of
payments, and our business and operating results
could be adversely affected.
We are exposed to risks related to the use of
AI by us and our competitors.
are
exploring
incorporating
artificial
intelligence
capabilities
into
the
development
technologies,
our
business
operations
and
our
merchandise.
technology
complex
and
rapidly
evolving
and
may
subject
significant
competitive,
legal,
regulatory,
operational
and
other
risks.
There is no guarantee that our use of AI will enhance our technologies, benefit our business operations, or
produce
apparel
and
accessories
that
are
preferred
our
customers.
Our
competitors
may
more
successful in their AI
strategy and develop
superior products with
the aid of AI
technology. Additionally,
AI algorithms or
training methodologies may be
flawed, and datasets
may contain irrelevant,
insufficient
or biased information, which can
cause errors in outputs. This may give
rise to legal liability,
damage our
reputation, and materially harm our business. The use of AI in the development of our products could also
cause
loss
intellectual
property,
well
subject
risks
related
intellectual
property
infringement or
misappropriation, data
privacy and
cybersecurity. The
United States
and other
countries
may adopt laws
and regulations related
to AI. These laws
and regulations could
cause us
to incur
greater
compliance
costs
and
limit
the
use
the
development
our
products. Any
failure
perceived
failure by us to comply with these regulatory requirements could subject us to legal
liabilities, damage our
reputation, or otherwise have a material and adverse impact on our business.
Risks Relating to Accounting and Legal Matters:
Our business operations subject us to legal compliance and litigation risks,
as well as regulations
and regulatory enforcement priorities, which could result in increased
costs or liabilities, divert our
management’s attention or otherwise adversely affect our business, results of operations and
financial condition.
Our operations
are subject
to federal,
state and
local laws,
rules and
regulations, as
well as
U.S. and
foreign
laws
and
regulations
relating
our
activities
foreign
countries
from
which
source
our
merchandise and operate our sourcing offices. Our business is also subject to regulatory and litigation risk
in all of these
jurisdictions, including foreign jurisdictions that may
lack well-established or reliable legal
systems for resolving legal disputes. Compliance risks and litigation claims have
arisen and may continue
arise
the
ordinary
course
our
business
and
include,
among
other
issues,
intellectual
property
issues,
employment
issues,
commercial
disputes,
product-oriented
matters,
tax,
customer
relations
and
personal injury
claims. International
activities subject
numerous U.S.
and international
regulations,
including
but
not
limited
restrictions
trade,
license
and
permit
requirements,
import
and
export
license
requirements,
privacy
and
data
protection
laws,
environmental
laws,
records
and
information
management regulations, tariffs
and taxes
and anti-corruption
laws, violations
of which
by employees or
persons acting
on the
Company’s
behalf may
result
in significant
investigation costs,
severe criminal
civil
sanctions
and
reputational
harm.
These
and
other
liabilities
which
may
subject
could
negatively
affect
our
business,
operating
results
and
financial
condition.
These
matters
frequently
raise
complex factual and
legal issues, which
are subject to
risks and uncertainties
and could divert
significant
management
time.
The
Company
may
also
subject
regulatory
reviews
and
audits,
the
results
which could materially and adversely
affect our business, results of
operations and financial condition. In
addition, governing laws,
rules and regulations,
and interpretations of
existing laws are
subject to change
from time to time.
Compliance and litigation matters could result
in unexpected expenses and liability,
well as have an adverse effect on our operations and our reputation.
New
legislation
regulation
and
interpretation
existing
laws
and
regulations,
including
those
related to
data privacy,
sustainability matters,
could increase
our
costs of
compliance, technology
and business
operations. The
interpretation of
existing or
new laws
existing and
evolving technology
and business practices can be uncertain and may lead to additional compliance
risk and cost.
Maintaining and improving our internal control over financial reporting
and other requirements
necessary to operate as a public company may strain our resources, and
any material failure in
these controls may negatively impact our business, the price of our common
stock and market
confidence in our reported financial information.
As a public
company, we
are subject to
the reporting requirements of
the Securities Exchange
Act of
1934, the
Sarbanes-Oxley Act
the rules
of the
SEC and
New York
Stock Exchange
and certain
aspects of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and
related rule-making that
has been and
may continue to
be implemented over
the next several
years under
the mandates of the Dodd-Frank Act. The
requirements of these rules and regulations have increased, and
may continue to increase, our compliance costs and
place significant strain on our personnel, systems and
resources.
satisfy
the
SEC’s
rules
implementing
the
requirements
Section
the
Sarbanes-
Oxley Act
must continue
document, test,
monitor and
enhance our
internal control
over
financial reporting, which is
a costly and time-consuming effort
that must be re-evaluated
frequently. We
cannot give
assurance that
our disclosure
controls and
procedures and
our internal
control over
financial
reporting, as
defined by applicable
SEC rules,
will be adequate
in the future.
Any failure
to maintain the
effectiveness
internal
control
over
financial
reporting
comply
with
the
other
various
laws
and
regulations to
which we
are and
will continue
subject, or
which we
may become
subject in
the
future,
public
company
could
have
adverse
material
impact
our
business,
our
financial
condition and
the price
of our
common stock.
In addition,
our efforts
to comply
with these
existing and
new requirements could significantly increase our compliance costs.
Adverse litigation matters may adversely affect our business and our financial
condition.
From
time
time
the
Company
involved
litigation
and
other
claims
against
our
business.
Primarily these arise in the
normal course of business but are
subject to risks and uncertainties, and
could
require
significant
management
time.
The
Company’s
periodic
assessment
litigation-related
matters
may change in light of the discovery of facts not presently known to us or determinations by
judges, juries
or other finders of fact. We
may also be subjected to legal matters not yet known to us. Adverse
decisions
or settlements of disputes may negatively impact our business, reputation
and financial condition.
If we fail to protect our trademarks and other intellectual property
rights or infringe the
intellectual property rights of others, our business, brand image,
growth strategy, results of
operations and financial condition could be adversely affected.
believe
that
our
“Cato”,
Fashion”,
Fashion
Metro”,
“Versona”,
“Cache”
and
“Body
Central”
trademarks
are
integral
our
store
designs,
brand
recognition
and
our
ability
successfully
build
consumer
loyalty.
Although
have
registered
these
trademarks
with
the
Patent
and
Trademark Office
(“PTO”) and
have also
registered, or
applied for
registration of,
additional trademarks
with
the
PTO
that
believe
are
important
our
business,
cannot
give
assurance
that
these
registrations
will
prevent
imitation
our
trademarks,
merchandising
concepts,
store
designs
private
label merchandise or
the infringement of
our other intellectual
property rights by
others. Infringement of
our
names,
concepts,
store
designs
merchandise
generally,
particularly
manner
that
projects
lesser quality or carries a negative connotation of
our image could adversely affect our business, financial
condition and results of operations.
The
Company
from
time
time
subject
claims
that
its
products,
processes,
advertising,
trademarks
infringe
the
intellectual
property
rights
others.
The
defense
these
claims,
even
ultimately successful, may result in costly litigation,
and if the Company is not successful in its defense, it
could be subject to
injunctions and liability for
damages or royalty obligations,
and the Company’s
sales,
profitability, cash flows, financial condition and reputation could be adversely affected.
Changes to accounting rules and regulations may adversely affect our reported
results of
operations and financial condition.
Changes
Generally
Accepted
Accounting
Principles
and
SEC
accounting,
disclosure
and
reporting rules
and regulations
are
common and
have become
more frequent
and significant
the
past
several
years.
Changes
accounting
rules,
disclosures
regulations
and
varying
interpretations
existing
accounting
rules,
disclosures
and
regulations
have
significantly
affected
our
reported
financial
statements and
those of
other participants
in the
retail industry
in the
past and
may continue
the
future.
Future
changes
accounting
rules,
disclosures
regulations
may
adversely
affect
our
reported
results
operations
and
financial
position
perceptions
our
performance
and
financial
condition.
Changes in tax and accounting laws and the mix and level of earnings
in any of the jurisdictions in
which we operate and the outcome of tax audits can cause fluctuations in our overall
tax rate,
which impact our reported earnings.
are subject to income
taxes in the
United States and numerous
domestic states, as well
as foreign
jurisdictions. In
addition, our
products are
subject to
import and
excise duties
and/or sales,
consumption
or value-added taxes in many jurisdictions. Significant judgment is required to determine and estimate tax
liabilities,
and
there
are
many
transactions
and
calculations
where
the
ultimate
tax
determination
uncertain. We
record tax
expense based
on our
estimates of
future payments,
which include
reserves for
estimates of probable settlements of domestic
and foreign tax audits. At any
one time, many tax years are
subject
audit
various
taxing
jurisdictions.
Adverse
determinations
these
audits
may
have
adverse effect
on our
reported financial results
in the
period such
determinations are
made, as
well as
future periods.
In addition, our
effective tax
rate may be
materially impacted by
changes in tax
rates and
duties,
the
mix
and
level
earnings
losses
taxing
jurisdictions,
changes
existing
accounting rules
regulations. As
a result,
expect
that throughout
the
year there
could
ongoing
variability in
our quarterly
tax rates
as events
occur and
exposures are
evaluated. Changes
to foreign
domestic tax
and accounting laws
and regulations, the
outcome of
tax audits and
changes in the
mix and
level
earnings
jurisdictions
could
have
material
impact
our
effective
tax
rate,
financial
condition, results of operations or cash flows.
Continued scrutiny and changing expectations surrounding sustainability
matters from investors,
customers, government regulators and other stakeholders may impose additional
reporting
requirements, additional costs and compliance risks.
Public companies
from across
all industries
have and
may continue
face scrutiny
from investors,
customers,
regulators
and
other
stakeholders
concerning
sustainability
matters.
the
there
have
been
numerous
initiatives
the
federal
and
state
level
impose
new
enhanced
disclosure
requirements
regarding
climate
emissions,
sustainability,
workforce
composition
and
related
metrics,
among other
topics. Complying
with these
complex reporting
obligations or
expectations could
increase
our
costs associated
with compliance,
disclosure and
reporting. Furthermore,
evolving laws,
regulations
stakeholder
expectations
may
result
uncertain,
potentially
burdensome,
and
changing
reporting
requirements
expectations,
and
our
failure
comply
with
such
requirements
expectations
may
adversely affect our reputation, business or financial performance.
Risks Relating to Our Investments and Liquidity:
We may experience market conditions or other events that could adversely impact the valuation
and liquidity of, and our ability to access, our short-term investments,
cash and cash equivalents
and our revolving line of credit.
Our
short-term investments
and cash
equivalents are
primarily comprised
of investments
federal,
state, municipal and corporate debt securities. The value of those securities may be adversely impacted by
factors
relating
these
securities,
similar
securities
the
broader
credit
markets
general.
Many
these factors
are beyond our
control, and include
but are
not limited to
changes to credit
ratings, rates of
default, collateral
value, discount
rates, and
strength and
quality of
market credit
and liquidity,
potential
disruptions in the capital
markets and changes in the
underlying economic, financial and
other conditions
that drive
these factors.
As federal,
state and
municipal entities
struggle with
declining tax
revenues and
budget deficits,
we cannot
be assured
of our
ability to
timely access
these investments
if the
market for
these issues
declines. Similarly,
the default
by issuers
of the
debt securities
we hold
or similar
securities
could
impair
the
value
liquidity of
our
investments.
The
development
persistence of
any
these
conditions could
adversely affect
our financial
condition, results
of operations
and ability
to execute
our
business
strategy.
addition,
have
significant
amounts
cash
and
cash
equivalents
financial
institutions that
are
in excess
the federally
insured limits.
An economic
downturn or
development of
adverse
conditions
affecting
the
financial
sector
and
stability
financial
institutions
could
cause
experience losses on our deposits.
Our ability
to access
credit markets
and our
revolving line
of credit,
either generally or
on favorable
market terms, may be
impacted by the
factors discussed in
the preceding paragraph, as
well as continued
compliance with covenants under
our revolving credit agreement. The
development or persistence of
any
of these
adverse factors or
failure to
comply with covenants
on which our
borrowing is conditioned
may
adversely affect
our financial
condition, results of
operations and
our ability
to access
our revolving
line
of credit and to execute our business strategy.
The terms of our asset-based revolving credit facility (“ABL
Facility”) restrict our operations and
financial flexibility, which could adversely affect our ability to respond to changes in our business
and to manage our operations.
are
subject
the
borrowing
terms
our
ABL
Facility,
which
limited
borrowing
base
consisting of certain eligible accounts
receivable and eligible inventory,
reduced by specified reserves, as
follows:
90% of eligible credit card receivables, plus
90% of the
net recovery percentage
of eligible inventory
multiplied by the
most recent appraised
value of such inventory, calculated at the lower of (a) cost computed on a first-in first-out basis or
(b) market value (net of intercompany profits and certain other adjustments),
minus
applicable reserves.
addition,
the
ABL Facility
prohibits
minimum excess
availability at
any time
less than
the
greater of
of the
loan cap
(defined as
the lesser
the borrowing
base at
such time
and (B)
$35 million (as of the date hereof)) and (ii) $5 million.
In addition, the covenants under
our ABL Facility include
restrictions that, among other things,
limit
our ability
to incur
additional indebtedness,
create liens
on assets,
make investments,
loans or
advances,
engage in mergers, consolidations, sell assets,
make acquisitions, pay dividends and make other restricted
payments, and enter into transactions with affiliates. A failure by us to comply with these covenants could
result
event
default,
which
could
adversely
affect
our
ability
respond
changes
our
business and
manage our
operations. Upon the
occurrence of
an event
of default,
the lenders
could elect
to declare all
amounts outstanding to
be immediately due
and payable and
exercise other remedies
as set
forth under
our ABL
Facility,
including without
limitation foreclosing
on the
collateral pledged
such
lenders. If
the indebtedness
under our
ABL Facility
was to
be accelerated,
our future
financial condition
could be materially adversely affected.
Risks Relating to the Market Value of Our Common Stock:
The interests of our principal shareholder may limit the ability of other
shareholders to influence
the direction of the Company and otherwise affect our corporate governance and
the market price
of our common stock.
Our common stock
consists of two
classes: Class
A and
Class B.
Holders of
Class A common
stock
are entitled to one vote per share, and holders of Class B common stock are entitled to
10 votes per share,
on all matters to be voted on by our common shareholders. All of the shares of Class B common stock are
beneficially owned by
John P.
D. Cato. As
a result, Mr.
Cato owns a
significant economic interest in
the
Company and
the
majority
the
total
voting
power
our
outstanding
common
stock
March
addition,
Cato
serves
Chairman
the
Board
Directors,
President
and
Chief Executive
Officer.
result, Mr.
Cato has
the ability
to substantially
influence or
determine the
outcome of all
matters requiring approval by
the shareholders, including the
election of directors
and the
approval
mergers
and
other
business
combinations
other
significant
Company
transactions.
Cato may
have interests
that differ
from those
of other
shareholders and
may vote
way with
which
other
shareholders disagree
perceive as
adverse to
their
interests. The
concentration of
voting power
held by
Cato could
discourage potential
investors from
acquiring our
common stock
and could
also
have the
effect of
preventing, discouraging or
deferring a
change in
control of
the Company,
even if
the
change in
control might
benefit the
shareholders generally.
This ownership
concentration may adversely
impact the trading
of our
Class A common stock
because of
perceptions of a
conflict of interest,
thereby
depressing
the
value
our
Class
common
stock.
Cato
also
has
the
ability
control
the
management of
the Company
result
of his
position as
Chief Executive
Officer.
Further,
we qualify
for
exemption
“controlled
company”
from
compliance
with
certain
New
York
Stock
Exchange
corporate
governance
listing
standards,
including
the
requirements
that
have
majority
independent
directors
our
Board,
independent
compensation
committee
and
independent
corporate
governance
and
nominating
committee.
Although
currently
intend
continue
comply
with these listing
standards even though
we are a
controlled company,
there can be
no assurance that
will continue
to comply
with these
optional listing
standards in
the future.
elected to
utilize these
“controlled
company”
exceptions,
our
other
shareholders
could
lose
the
benefit
these
corporate
governance requirements and the market value of our common
stock could be adversely affected.
Our operating results are subject to seasonal and quarterly fluctuations,
which could adversely
affect the market price of our common stock.
Our business
varies with
general seasonal
trends that
are characteristic
of the
retail apparel
industry.
result, our
stores typically
generate a
higher percentage
of our
annual net
sales and
profitability in
the
first
and
second
quarters
our
fiscal
year
compared
other
quarters.
Accordingly,
our
operating
results for
any one
fiscal period
are not
necessarily indicative
of results
be expected
from any
future
period,
and
such
seasonal
and
quarterly
fluctuations
could
adversely
affect
the
market
price
our
common stock.
We cannot provide assurance that we will pay dividends, or that if paid, any dividend payments will
be consistent with historical levels.
The declaration and payment of any dividend is subject to the approval of our Board of Directors.
Our
Board of
Directors regularly
evaluates
our ability
pay a
dividend based
on many
factors,
such as
but
not
limited
applicable
legal
requirements,
the
financial
position
the
Company,
contractual
restrictions
and
our
capital
allocation
strategy.
Our
Board
Directors
most
recently
suspended
the
payment of quarterly dividends in November 2024 and may continue to suspend the payment
of dividends
if it deems such an action to
be in the best interests of the
Company and its shareholders. There can be no
assurance that a cash dividend will be declared in the future in any particular
amount, or at all.
Conditions in the stock market generally, or particularly relating to our industry, Company or
common stock, may materially and adversely affect the market price of our
common stock and
make its trading price more volatile.
The trading
price of
our common
stock at
times has
been, and
is likely
to continue
subject to
significant volatility.
A variety of
factors may cause
the price
of our
common stock to
fluctuate, perhaps
substantially,
including,
but
not
limited
those
discussed
elsewhere
this
report,
well
the
following: low
trading volume;
general market
fluctuations resulting
from factors
not directly
related to
our operations or the inherent value of
our common stock; announcements of developments related to our
business; fluctuations in our reported operating results; general conditions or trends affecting or perceived
to affect
the fashion and
retail industry; conditions or
trends affecting or
perceived to affect
the domestic
or global
economy or
the domestic
or global
credit or
capital markets;
changes in
financial estimates
the scope
of coverage
given to
our Company
by securities
analysts; negative
commentary regarding
our
Company
and
corresponding
short-selling
market
behavior;
adverse
customer
relations
developments;
significant changes in our senior management team; and legal proceedings.
Over the past several years the
stock market in general, and the market for shares of equity securities of many retailers in particular,
have
experienced extreme price
fluctuations that
have at times
been unrelated to
the operating
performance of
those companies.
Such fluctuations
and market
volatility based
on these
or other
factors may
materially
and adversely
affect the
market price
of our
common stock.
Further,
securities class
action litigation
has
often
been
initiated
against
companies
following
periods
volatility
their
stock
price.
This
type
litigation,
should
materialize,
could
result
substantial
costs
and
divert
our
management’s
attention
and
resources,
and
could
also
require
make substantial
payments
justify
judgments
settle
litigation. The threat of class action litigation could also cause the price of
our common stock to decline.
