ITEM 1A. Risk Factors
The statements in this section describe the major risks to our business and should be considered carefully, in connection with all the other information set forth in this annual report on Form 10-K. The risks listed below are those that we think, individually or in the aggregate, are potentially material to our business and could cause our actual results to differ materially from those stated or implied in forward-looking statements. There may be additional risks that we are not aware of or that we currently believe are immaterial, and factors besides the ones discussed below, that could adversely affect our business.
OPERATIONAL AND STRATEGIC RISKS
Failure to execute our opportunistic buying strategy and successfully manage our inventory could adversely affect our results.
Key elements of our off-price business strategy, including opportunistic buying, operating with relatively lean inventory levels, frequent inventory turns and our treasure hunt experience, subject us to risks. Our customer transactions and our sales, margins and other financial results could be adversely affected if we do not obtain and allocate the right merchandise at the right times, in the right quantities, at the right prices, in the right mix and into the right stores.
Our opportunistic buying strategy places considerable discretion with our merchants. They typically buy throughout the year, with much of our merchandise purchased for the current or immediately upcoming season. Our merchants are expected to react effectively to rapidly changing opportunities and trends in the market, to assess the desirability and value of merchandise and to generally make determinations of what and how we source, as well as when and from where we source it.
If they do not make assessments accurately or otherwise cannot execute our strategy in an effective or timely way, our customer transactions and our sales, margins and other financial results could be adversely affected. If our merchandise is not generally purchased at prices sufficiently below prices paid by conventional retailers, we may not be able to maintain our desired value gap at various times or in some segments, banners, product categories or geographies, which could also affect our sales, margins and other financial results.
We also base our inventory purchases, in part, on our sales forecasts. If our sales forecasts fail to predict customer demand with sufficient accuracy, or we do not appropriately allocate and deliver merchandise to stores, maintain inventory mix and levels, or maintain flexibility in our allocation of floor space across product categories effectively, then we may either have higher inventory levels than we planned and may need to take markdowns on excess or slow-moving inventory, or have insufficient inventory to meet customer demand, either of which could impact sales in a way that could adversely affect our financial performance.
In addition to the above factors, a variety of external factors have impacted, and may continue to impact, execution of our opportunistic buying strategy and inventory management. In the past, our ability to allocate, deliver and maintain our preferred mix and level of inventory has been impacted by temporary store closures, inflationary pressures, global supply chain disruptions and other challenges as a result of external events. For more information, see “External and Economic Risks” below.
Failure to identify consumer trends and preferences, or to otherwise meet customer demand or expectations, in new or existing markets or channels could negatively impact our performance.
As our success depends on our ability to meet customer demand and expectations, we seek to identify consumer trends and preferences on an ongoing basis and to offer inventory and shopping experiences that meet those trends and preferences. However, we may not do so effectively and/or in a timely manner across our diverse merchandise categories and in each of the many markets in which we do business. Trends and preferences in markets may differ from what we anticipate and could change rapidly. Although our business model allows us greater flexibility to meet consumer product preferences and trends than many traditional retailers (for example, by rapidly expanding and contracting merchandise categories in response to consumers’ changing tastes), we may not successfully do so, which could impact inventory turns, customer transactions and sales, and may have a negative impact on our ability to attract new customers, retain existing customers and/or encourage frequent customer visits and/or cross-shopping of our multiple retail banners, any of which could adversely affect our results.
Customers also may have expectations about how they shop in stores or through e-commerce or more generally engage with businesses across different channels (including digital/social media platforms). These expectations may vary both across and within demographics and geographies and may evolve rapidly or be impacted by external factors. For example, changes to our store layout, loss prevention, or digital security protocols may impact the shopping experience and customer transactions. Similarly, platforms that help consumers engage with our brands may change in meaningful ways, negatively impacting the consumer experience and reducing or eliminating benefits to us from that channel. Meeting customers’ expectations effectively generally involves identifying the right opportunities, balancing them with potential risks and making the right investments at the right time, on the right scale and with the right speed, among other things, and failure to do so effectively may impact our business and financial results.
We operate in highly competitive markets, and we may not be able to compete effectively.
The retail apparel and home fashion businesses are highly competitive. We compete on the basis of various factors affecting value (which we define as the combination of brand, fashion, price and quality). We also compete on merchandise selection and freshness; banner name recognition and appeal; both in-store and online service and shopping experience; convenience and store location. We compete with local, regional, national and international retailers that sell apparel, home fashions and other merchandise that we may carry, including retailers that operate through stores, e-commerce and/or other media, as well as omnichannel retailers. Some of our competitors are larger than we are, hold greater financial resources, have more experience selling certain product lines, provide certain product categories more consistently, or provide products through different channels than we do. Competitors may increase their presence in markets in which we operate, consolidate with other retailers, expand their merchandise offerings, expand their e-commerce and delivery capabilities, add new sales channels, change their pricing strategies and/or adopt new processes or technologies that may allow them to compete more effectively. We could be at a competitive disadvantage if, over time, our competitors are more effective than we are in their use and integration of rapidly evolving technologies, including artificial intelligence or other emerging technologies. In addition, new competitors frequently enter the market. More generally, consumer e-commerce spending may continue to increase, as it has in recent years, while our business is primarily in brick-and-mortar stores. If we to compete effectively, our sales and results of operations could be affected.
If we fail to successfully implement our marketing efforts, if our marketing efforts are not successful in driving expected increases in sales or if our competitors’ marketing programs are more effective than ours, our revenue or results of operations may be adversely affected.
Customer transactions and demand for our merchandise may be influenced by our marketing efforts. Although we use various marketing channels (including, among others, linear television, streaming video, audio, outdoor, digital/social media and mobile) to drive customer awareness of and interest in shopping our retail banners and to increase sales, some of our competitors may spend more for their marketing programs or use different approaches than we do, which may provide them with a competitive advantage. Our competitors’ marketing programs may also resonate with consumers more than ours do. Changes to online search, email delivery, and digital/social media (including algorithmic changes) can increase customer acquisition costs, reduce the effectiveness of digital marketing and/or alter traffic patterns to our e-commerce sites and/or stores. We may not be able to develop or implement strategies effectively in rapidly evolving digital/social media channels, which may adversely impact some of our banners, segments, or overall business. We also may face challenges appropriately managing strategies for our different banners across geographies. Further, our marketing partners, celebrities, social media content creators, influencers or other individuals who are viewed as representing our banners may expose us to reputational or other risks. For delivery of our marketing we depend on a variety of partners whose financial health, reputation and/or ability to attract talent could impact the results of our marketing. If our marketing efforts are not as or cost as anticipated, our revenue and results of operations could be affected.
Failure to continue to expand our business successfully could adversely affect our financial results.
Our growth strategy includes, whether by development, investment, or acquisition, successfully expanding our business within our current markets and/or into new geographic regions, appropriately calibrating product lines and channels (including within our e-commerce sites) and, as appropriate, adding new businesses. If any aspect of our expansion strategy does not achieve the success we expect, in whole or in part, we may fail to meet our financial performance expectations generally or within certain markets or divisions, and we may be required to increase or decrease investments or slow our planned growth. For our store growth, even if a particular market has high commercial vacancies, if we are not able to find and lease appropriate real estate on attractive terms in the locations where we seek to open stores, or if new stores do not perform as well as we anticipated, we may need to change our planned growth in those markets. We have closed stores and operations and have divested from and disposed of businesses in the past, including for performance-related reasons, and we may be required to do so again in the future.
Growth can also add complexity to our business operations by requiring effective and timely information sharing; significant additional attention from our management and other functions across our business, including compliance and risk management; attention to varied health and safety requirements; integration of existing or development of new capabilities, processes and controls; increased staffing and Associate training and retention, including in new or unfamiliar labor markets; and management of appropriate third-party providers, including training or coordinating with those operating businesses in which we are invested or with which we share certain responsibilities. These requirements may increase with further growth, particularly if we expand into additional countries. If we are unable to manage our growth effectively, our business may be adversely affected or we may need to reduce the rate of expansion or otherwise curtail growth, which may adversely affect our sales, business plans and results.
Failure to effectively manage the large size and scale of our operations may adversely affect our financial results.
The substantial size of our business can make it challenging to run our complex operations effectively and to manage suitable internal resources and third-party providers with appropriate oversight, including, for example, for teams managing information technology (“IT”) systems, merchandising, sourcing, marketing, store operations, distribution, logistics, compliance, finance and administrative support. The large size and scale of our operations, our multiple banners and locations across the U.S., Canada, Europe and Australia and the autonomy afforded to the banners in some aspects of the business also increase the risk that our systems, controls, practices and policies may not be effectively or consistently implemented or updated on a timely basis throughout our company, or that information may not be appropriately shared across our operations. The size and scale of our business also create challenges in human resources administration and effectively recruiting, managing, training, retaining and engaging a large, disparate workforce, including Associates in on-site, remote and hybrid roles. These challenges may increase if a portion of our workforce is unable to work on site or is temporarily furloughed, as has occurred in the past. If we are unable to manage our size and scale effectively, our results of operations may be adversely affected.
We source our merchandise globally, which subjects us to risks, including when moving merchandise internationally.
We are subject to various risks of sourcing merchandise, particularly from other countries, including risks related to moving merchandise internationally. Many of the products sold in our stores are sourced in locations (particularly in China, India and southeastern Asia) other than the location in which they will be sold. Where we are the importer of record, we may be subject to regulatory or other requirements, including those similar to requirements imposed upon the manufacturer of such products. Risks related to sourcing merchandise include:
– potential disruptions in manufacturing and supply;
– transport availability, capacity and costs;
– tariffs, duties, border adjustment taxes, trade restrictions, sanctions, quotas and voluntary export restrictions on imported merchandise;
– changes to international trade agreements or to trade agreement enforcement practices;
– compliance with laws and regulations including labor, environmental, supply chain, international trade and other laws in relevant countries and those concerning ethical business practices;
– problems with third-party distribution and warehousing, logistics, transportation and other supply chain interruptions;
– IT security or resiliency challenges;
– strikes, threats of strikes and other events affecting delivery;
– consumer perceptions of the safety or quality of imported merchandise;
– compliance with product laws and regulations of the destination country;
– product liability claims from customers or investigations, enforcement actions or penalties by or from government agencies relating to products that are recalled, defective or otherwise noncompliant or alleged to be harmful;
– pandemics and epidemics (such as the COVID-19 pandemic) affecting sourcing, including manufacturing, buying or delivery;
– intellectual property enforcement and infringement issues;
– concerns about environmental impact where merchandise is produced or materials are sourced, including relating to greenhouse gas emissions, waste, water usage, deforestation, biodiversity and the impact of these activities on human health and local communities;
– concerns about human rights, working conditions and other labor rights and conditions where merchandise is produced or materials are sourced;
– currency exchange rates and financial or economic instability (including potential financial instability related to banking institutions); and
– political, military or other disruptions in regions and/or countries from, to or through which merchandise is imported, including in Ukraine and Russia, the Middle East and the Red Sea and surrounding waterways.
Further, we are, and expect we will continue to be, subject to an increasing number of regulations that require us to report, develop new policies and procedures for, and, in certain cases, work to mitigate, certain supply chain risks related to sourcing merchandise internationally. As with other regulations, these may result in increased operating costs and affect where, what and how we source and how we allocate what we buy. These and other factors relating to sourcing, international trade and imported merchandise could affect the availability and the price of our inventory and our operating costs. Furthermore, although we have implemented policies and procedures designed to facilitate compliance with laws and regulations relating to production of merchandise, international operations and importing merchandise, our Associates and our contractors, agents, vendors or other third parties with whom we do business or to whom we outsource or coordinate business operations, including retail operations, may nevertheless violate such laws and regulations or our policies, which could subject us to liability and could adversely affect our reputation, operations or operating results.
Compromises of our cybersecurity, disruptions in our IT systems, or failure to satisfy the IT needs of our business could result in material loss or liability, materially impact our operating results or materially harm our reputation.
Our business depends on our IT systems, which collect and process information of customers, Associates and other persons, as well as information of our business and of our suppliers, service providers and other third parties. We rely heavily on IT systems, including those operated and maintained by our suppliers, service providers and other third parties, to manage key aspects of our business, including planning; purchasing; sales, including point-of-sale transaction processing and e-commerce; supply chain management; logistics; inventory management; human resources; financial management; communications; information security and legal and regulatory compliance. Our ongoing operations and successful growth are dependent on these systems and require us to accurately anticipate our current and future IT needs. This includes successfully developing, implementing and maintaining appropriate systems; adopting new technologies (including artificial intelligence or other emerging technologies) appropriately and in a timely manner; and maintaining effective disaster recovery and resiliency plans for such systems. Our ongoing operations and successful growth are dependent on our doing these things effectively. We also are dependent on the ongoing integrity, security and consistent operation of these systems, including related back-up systems.
As is common in the retail industry, our IT systems, as well as those of our suppliers, service providers and other third parties with whom we do business directly or indirectly, are targeted by attempts to access or obtain personal or other sensitive information, attempts at monetary theft and attempts to disrupt business. These attempts include use of malware, ransomware, phishing, vishing, deepfakes, social engineering, denial-of-service attacks, exploitation of system vulnerabilities or misconfigurations, Associate or third-party malfeasance, digital and physical payment card skimmers, account takeovers and other forms of cyber-attacks. These attempts continue to increase in sophistication (including through the use of artificial intelligence), heightening the risk of compromise or disruption. While some of these attempts have resulted in cybersecurity incidents, the unauthorized intrusion into our network discovered late in 2006 is the only such cybersecurity incident to date that has been material to the results of our operations. Our IT systems and those of our suppliers, service providers and other third parties with whom we do business directly or indirectly also may be or , or personal or sensitive information compromised, from a number of other causes, including power , system , events, or Associate or third-party . Such , or compromise could materially our ability to operate our business or otherwise result in material impacts on our operating results.
Changes in the business landscape and the impact of remote working by our Associates, service providers and other third parties have the potential to increase the likelihood of system damage or disruption and increase the risk of a cybersecurity compromise. The size, geographic dispersion, and turnover rate of our workforce increase the risk that our controls may not be implemented consistently.
Additionally, there continues to be a heightened risk of cybersecurity incidents as a result of geopolitical events outside of our control. These factors have led to the need for additional mitigation strategies and investments across our IT workforce, capabilities and processes.
In addition, the global regulatory environment surrounding information security and privacy is increasingly demanding, and cybersecurity compromises and disruptions in our IT systems could result in regulatory enforcement actions, class actions, contract liability or other forms of material legal liability. Any successful compromise or disruption of our IT systems, or other compromise of the information that we collect or is collected on our behalf from our customers, Associates or other persons, could result in material reputational harm and impact our customers’ willingness to shop in our stores or online, and could affect our suppliers’, service providers’, or other third parties’ willingness to do business with us.
We maintain policies, procedures and controls designed to reduce the risks of cybersecurity compromises and IT failures or disruptions, but these controls vary in maturity across the business and may fail to operate as intended or be circumvented by bad actors. Additionally, the logging policies, procedures and controls that we have implemented to facilitate the investigation of potential cybersecurity compromises or disruptions may be insufficient to fully investigate and determine the root cause of each such event. These policies, procedures and controls also require costly and ongoing investment in technologies, hiring, training and compliance.
There is also a risk of material business disruption, liability and reputational damage associated with ongoing actions intended to update, enhance, modify or replace our systems and infrastructure, including from not accurately capturing and maintaining data, not efficiently testing and implementing changes, not realizing the expected benefit of the change, not effectively managing the potential disruption of the actions and diversion of internal teams’ attention as the changes are implemented.
Our results and profitability could be adversely affected by increased labor costs, including wage, pension, health and other costs, or other challenges from our large workforce.
Our Associates are key to supporting our business and operations effectively, and we expect that our operating expenses will continue to reflect increasing labor costs. We have a large and disparate workforce, and our ability to meet our labor needs and manage labor costs is subject to various external factors such as minimum wage laws and other pay or benefit mandates; market pressures, including prevailing wage rates and benefit levels, unemployment levels, competition for labor within and beyond the retail industry, and labor market dynamics related to automation and technology; economic conditions, including inflation; changing demographics and workforce trends, including with respect to unionization and collective bargaining; workplace health and safety costs; interest rate changes; actuarial assumptions and methods; the costs of providing and managing retirement, health and other employee benefits; governmental programs; and a dynamic regulatory and policy environment, including with respect to health care, immigration, labor, employment, pension and other employee benefits, and taxation. Any of these factors could increase, and in the past have increased, our labor costs. These factors could also increase the labor or other costs of our service providers, or result in labor disruptions affecting their operations, which could be passed on to us or increase our legal exposure or costs. Conversely, failing to offer competitive wages or benefits, or to manage our workforce effectively, could affect our ability to attract or retain appropriate talent sufficient to meet the needs of our business, which could cause our customer service or business execution to , and affect our financial performance.
Additionally, many Associates in our distribution network in the United States and Canada are members of unions, and other Associates are members of works councils in Europe. We are subject to the risk of labor actions or disruptions of various kinds, including work stoppages and decreased flexibility as a result of labor law limitations. We are subject to risks and potential material expenses associated with multiemployer plans, including from pension plan underfunding, benefit cuts, increased contribution or funding requirements, changes in plan terms, withdrawal liability, increased premium costs, conditions imposed under any governmental assistance programs or the insolvency of other participating employers or governmental insurance programs. Other portions of our workforce that are not covered by collective bargaining agreements, including, for example, Associates who work in our U.S. stores, who make up the largest portion of our workforce, may become unionized, which may subject us to additional requirements, expectations, actions or expense.
Failure to employ qualified Associates in appropriate numbers and to retain key Associates and management could adversely affect our performance.
We need to employ a large number of capable, engaged Associates for our stores and distribution centers and for other areas of our business. We must constantly recruit new Associates to fill entry level and part-time positions, which have high rates of turnover, and at certain times must hire sufficient numbers of seasonal talent. The availability and skill of Associates may differ across markets in which we do business and in new markets we enter, and we may be unable to meet or manage our labor needs effectively. In addition, we have faced and may continue to face additional challenges in recruiting or retaining sufficient talent due to shifts in the labor market, wage pressures and competition, flexible scheduling needs and health and safety concerns, among other factors. We have faced and may continue to face challenges in engaging, overseeing and training Associates in on-site, remote or hybrid roles. We also have faced and may continue to face potential challenges relating to Associates’ willingness or ability to staff our stores and distribution centers or otherwise continue employment as a result of economic pressures, health and safety concerns or otherwise.
Our performance also depends on recruiting, hiring, developing, training and retaining talented Associates in key areas such as buying, IT functions, and other corporate areas. Similar to other retailers, we face challenges in securing and retaining sufficient talent in management and other key areas for many reasons, including competition for talent in the retail industry, from other industries and in various geographic markets. In addition, because of the distinctive nature of our off-price model, we must provide significant internal training and development and successfully manage transitions for key Associate roles across the Company, including within our buying organization. Failure to effectively attract qualified individuals, train them on our business model, support their development, engage them in our business, and retain them in sufficient numbers and at appropriate levels of the organization, and implement appropriate succession plans could disrupt our operations, impair our ability to execute our business model, limit our growth, and negatively impact our business and financial results.
Damage to our corporate reputation or any of our retail banners’ reputation could adversely affect our sales and operating results.
Our customer relationships and our reputation are based, in part, on perceptions of subjective qualities. Incidents that erode trust or confidence in our company could adversely affect our reputation and thereby impact our business, particularly if the incidents result in rapid or significant adverse publicity, protest, litigation, boycotts, governmental inquiry or other stakeholder responses. This could include incidents that involve the company; our policies and practices; our retail banners; our executives and other Associates; our board of directors; senior leadership transitions, including those involving our Chief Executive Officer or other key executives; how we source merchandise; our third-party providers, including those providing retail operations on our behalf; our vendors and others within our supply chain; the merchandise and brands that we sell, including our licensed or owned brands; our investments; the regions where we have operations or investments; our marketing partners; celebrities, content creators, social media influencers, or other individuals viewed as representing us or our banners (whether or not we partner with them) that may draw attention to our retail banners; product ; involving workplace safety, or discrimination , or labor activity; inquiries or other communications from governmental agencies about our business or practices; and our industry more generally. Information about such that is publicized through traditional or digital/social media platforms or other forums that facilitate rapid, broad communications to an audience of consumers and other interested persons, may affect our reputation and brand, even if the information is , , or unverified. Similarly, or reactions to action (or ), or perceived action (or ), by our company to sensitive or polarizing topics, , or political matters, or on issues related to corporate responsibility or environmental, social and governance matters, or any perceived of about such matters, could our reputation.
This kind of reputational damage could occur locally or globally and could impact our company or our individual retail banners. Damage to the reputation of our company and our banners could, among other things, result in declines in stock price; declines in customer loyalty and sales; affect our vendor relationships and/or business development opportunities; limit our ability to attract and retain appropriate talent sufficient to meet the needs of our business; result in demonstrations, protests, or altercations at or about our stores; divert the attention and resources of management, including to respond to inquiries or additional regulatory scrutiny; and otherwise adversely affect our financial results.
Our business is subject to changing corporate compliance, governance and public disclosure regulations and expectations, including with respect to matters relating to environmental sustainability, human capital management, social compliance and governance. Failure to meet such expectations or comply with regulations could materially impact our operating results or materially harm our reputation.
Various stakeholders, including certain advocacy groups, investors, customers, governmental officials and Associates, have increasingly focused on, and, from time to time, communicated with the Company about, topics such as social impact, environmental sustainability, human capital management, human rights and other related matters in a variety of ways that are not necessarily consistent. From time to time, we have announced certain initiatives related to our corporate responsibility efforts, which we have focused under four pillars: workplace, environmental sustainability, communities and responsible sourcing (which includes social compliance in our supply chain). These initiatives may be considered to be overreaching by some stakeholders and inadequate by other stakeholders. We could fail or be perceived to fail or fall short in our pursuit of such initiatives, in going too far in pursuing priorities perceived as outside of our business mission, or in accurately and comprehensively reporting our progress on such initiatives and any related goals and commitments. If our practices or disclosures in these areas do not meet investor or other stakeholder expectations and standards, including related to climate change, environmental sustainability, human capital management, inclusion and diversity, supply chain management and human rights, or do not meet related regulations and expectations, our reputation may be impacted negatively, and we may be subject to risk, regulatory enforcement and/or other governmental or action, which could materially impact our operating results. In addition, we could be for the scope, pace or prioritization of our programs, initiatives or goals, or perceived as not acting responsibly in connection with these matters or otherwise, and that evaluation may be based on factors unrelated to the impact of these matters on our business, financial or otherwise. Our , or perceived , with these programs or initiatives or more generally to manage reputational and meet shifting and, in certain cases, , stakeholder expectations or consumer preferences could impact our brand, image, reputation, credibility, Associate recruitment and retention and the willingness of our customers and suppliers to do business with us.
Further expansion of our international operations could expose us to risks inherent in operating in new countries.
We have a significant retail presence in several countries in Europe and in Canada and Australia. We also operate buying and other offices around the world and have made investments in certain geographies, including our entry into a joint venture in Mexico and our minority equity investment in the Middle East. We generally look for opportunities to continue to expand our operations globally, such as our announced expansion into Spain. It can be costly and complex to establish, develop and maintain international operations, to identify appropriate store locations, to hire, train and integrate Associates, and to promote business in new international jurisdictions, which may differ significantly from other countries in which we currently operate.
As with our current operations, risks are inherent in opening and developing operations in, or making investments in, new countries, including risks related to compliance with the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. Additional risks include, among others, understanding the local retail climate and trends, local customs and cultures, local labor markets, seasonal differences, business practices and competitive conditions; complying with relevant laws, rules and regulations; developing an appropriate infrastructure; identifying suitable partners for local operations and for integration with our global operations and effectively communicating and implementing company policies and practices in new, possibly remote, jurisdictions. Financial, regulatory and other risks are also associated with international operations, including currency exchange fluctuations; potentially adverse tax consequences; limitations on the repatriation and investment of funds outside of the country where earned; trade regulations; other compliance requirements; the risk of policy or regulatory changes, including those that could affect sourcing and allocation and/or add significant compliance and disclosure costs; the risk of political, economic and civil instability and labor unrest; and uncertainties regarding interpretation, application and enforceability of laws and agreements. Any of these risks could impact our operations, or liquidity.
Failure to meet market expectations for our financial performance could adversely affect the market price and volatility of our stock .
Our operating results have fluctuated from quarter to quarter, sometimes significantly, at points in the past and may do so again in the future. If we fail to increase our results over prior periods, to achieve our projected results or to meet the expectations of securities analysts or investors, our stock price may decline (as it has at times in the past), and the decrease in the stock price may be disproportionate to the shortfall in our financial performance. Results may be affected by various factors, including those described in these risk factors. In addition, we maintain a forecasting process that seeks to plan sales and align expenses. However, if we do not control costs or appropriately adjust costs to actual results, or if actual results differ from our forecast, our financial performance could be adversely affected. In addition, if we suspend our buyback program, which we have done in the past, or if we have an active buyback program and are repurchasing shares but do not repurchase the number of shares we contemplated pursuant to our financial plans at the rate or in the timing we planned, our earnings per share may be affected. Similarly, if we reduce or our dividend distributions, as we did for part of fiscal 2021, our stock price may be affected.
Failure to protect our inventory or other assets from loss and theft and situations resulting in loss or theft may impact customer and Associate safety as well as our financial results.
Risk of loss or theft of assets, including inventory shrinkage, is inherent in the retail business. Loss may be caused by error or misconduct of Associates, customers, vendors or other third parties, including through organized retail crime and professional theft, and may be further impacted by macroeconomic factors, including the enforcement environment, as well as increased inventory levels in our stores. We may not be able to effectively determine the cause or extent of the loss. Our inability to prevent and/or minimize or reduce the loss or theft of assets effectively, or to predict and accrue for the impact of those losses accurately, has adversely affected our financial performance in the past and could do so again. In addition, our ability to provide a safe environment in our stores may be impacted in the course of a theft or other behavioral situations that periodically arise.
We depend upon strong cash flows from our operations to supply capital to fund our operations, anticipated growth, any stock repurchases and dividends and interest and debt repayment.
Our business depends upon our operations continuing to generate strong cash flow to supply capital to support our general operating activities, to fund our anticipated growth and any return of cash to stockholders through our stock repurchase programs and dividends and to pay our interest and make debt repayments. If we are unable to generate sufficient cash flows or to repatriate cash from our international operations in a manner that is cost effective, our growth plans, capital expenditures, operating expenses and financial performance, including our earnings per share, could be adversely affected.
Mergers, acquisitions or investments in new businesses, or divesting, closing or consolidating any of our current businesses, subjects our business to additional risks and could adversely affect our results.
We have in the past and may again acquire new businesses; invest in or enter into joint ventures with other businesses (as we did during fiscal 2025 with our minority equity investment in the Middle East and in our joint venture in Mexico); develop new businesses internally (as with Homesense, our second U.S. home store concept); launch or expand e-commerce platforms (as we have done with tkmaxx.de and tkmaxx.at in Europe); and divest (as we did in fiscal 2023 with our minority interest in an off-price retailer of apparel and home fashions operating stores throughout Russia), close, or consolidate businesses. Failure to execute on mergers, acquisitions, investments, divestitures, closings and consolidations in an effective or satisfactory manner, including due to circumstances outside our control, could adversely affect our future results of operations and financial condition. Acquisition, investment or divestiture activities may divert attention of management away from operating our existing businesses. We may not effectively evaluate target companies, investments or investment partners or assess the risks, benefits and costs of buying, investing in or businesses, or the integration or attendant risks of acquired businesses or investments, all of which can be , time-consuming and dilutive. These activities may not meet our performance and other expectations and may us to or -than-expected costs, liabilities and risks, including from, for example, changes in law, market conditions, economic conditions, the retail industry, political conditions, human capital matters, assumptions, or the or of our partners or other third parties. In addition, in connection with most of our prior acquisitions, we recorded intangible assets and goodwill and the value of the tradenames, and may similarly do so in the future in connection with other acquisitions. If we are to realize the anticipated benefits from acquisitions or investments, we may be required to some or all of the goodwill associated with an acquisition or some or all of the investment, which would impact our results of operations and balance sheet, such as with an charge. For example, in connection with the between Russia and Ukraine, we our minority ownership interest in an off-price retailer that operates stores in Russia and did not recover the full value of our investment. , and consolidations could involve risks such as significant costs and obligations of , including exposure on leases, owned real estate and other contractual, employment, pension and severance obligations and potential liabilities that may arise under law as a result of the disposition or as a result of the credit risk of an acquirer.
Our large number of real estate leases, which generally obligate us for long periods, subject us to potential financial risk.
We lease almost all of our store locations and either own or lease for long periods our primary distribution centers and administrative offices. Accordingly, we are subject to the risks associated with leasing and owning real estate. While we have the right to terminate some of our leases under specified conditions, including by making specified payments, we may not be able to terminate most of our leases if or when we would like to do so. If we decide or are required to permanently close stores, we typically are required to continue to perform obligations under the applicable leases, which generally include, among other things, paying rent, insurance premiums, real estate taxes, and maintenance expenses for the balance of the lease term, and the cost of any of these obligations may be significant. When we assign leases to third parties, or if we sell or close a business, we can remain liable for the lease obligations for the balance of the term and be contingently liable if the assignee does not perform (as was the case with some of our former operations). We also remain primarily liable if we sublease space to a third party. In addition, when the lease terms for the stores in our ongoing operations expire, we may be unable to negotiate renewals, either on commercially reasonable terms or at all, which could cause us to permanently close stores or to relocate stores within a market on less terms or in a less location. If we decide to operations at any locations that we own, we may be to of such real estate (including by selling or leasing such real estate to a third party) on market terms. In such case, we would continue to incur ownership obligations on unused property, and the cost of these obligations may be significant. Any or all of these factors could affect our financial results.
EXTERNAL AND ECONOMIC RISKS
Economic conditions on a global level or in particular markets, geopolitical uncertainty, and other factors creating uncertainty and instability may adversely affect consumer confidence and discretionary spending, which could affect our financial performance.
Consumer confidence and discretionary spending can be affected by various economic conditions, both on a global level and in particular markets, that can, in turn, affect our business or the retail industry generally. These factors include, among others, inflation and deflation; actual or perceived declines in consumer purchasing power; economic recession; unemployment levels; availability of disposable income and actual and perceived wealth; health care costs; costs of oil, gas and other commodities; interest rates and tax rates and related policies; weakness in the housing market and rising housing costs; volatility in capital markets and credit availability. Many of these factors have been present in the market in recent years, including inflation and economic downturn, which has impacted consumer confidence and discretionary spending.
Volatility or uncertainty in regulation or policy, including in areas such as international diplomacy, trade and tariff policies; threats or occurrences of war or armed conflict, geopolitical instability or uncertainty, (including in Ukraine and the Middle East, and shipping disruptions in the Red Sea and surrounding waterways); terrorism; pandemics or epidemics (such as the COVID-19 pandemic); supply chain disruptions; uncertainty regarding the financial stability of banking institutions; and political or social unrest and/or conflict (locally or across regions) have had and may continue to have significant effects on consumer confidence and spending. Factors that affect consumer confidence and spending can in turn impact trends in spending, the retail industry generally, and our business and financial results. Shifts in the market may adversely affect our sales, cash flows, merchandise orders and results of operations and performance.
Changes to U.S. or other countries' trade policies and tariff and import/export regulations or our failure to comply with such regulations may have an adverse effect on our business, financial condition, and results of operations.
Changes in the import and export policies, including trade restrictions, new or increased tariffs or quotas, embargoes, sanctions and countersanctions, safeguards or customs restrictions by the U.S. and/or other foreign governments, could require us to change the way we conduct business, affect our merchandise margins and adversely affect our financial condition, results of operations, reputation and our relationships with customers, vendors and Associates in the short- or long-term. Similarly, changes in laws and policies governing foreign trade, manufacturing, development and investment in the countries where we currently operate could adversely affect our business.
The U.S. government has imposed, and may in the future impose further, tariffs on certain foreign goods and product imports. These actions have resulted, and are expected to further result, in retaliatory measures on U.S. goods. In February 2026, the U.S. Supreme Court issued a decision invalidating tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”). The ruling may allow for recovery of IEEPA tariff amounts previously paid, although the timing and administration of any potential IEEPA tariff refunds is unknown and may be subject to further legal and regulatory developments. Subsequent to the U.S. Supreme Court’s ruling, an executive order was issued imposing a new global tariff, in addition to any existing non-IEEPA tariffs. The outlook on further trade policy actions, including trade agreements and potential retaliatory tariffs is unclear. These tariffs and other potential trade disputes could pose a risk to our business that could affect our revenue and cost of sourcing our merchandise. The extent and duration of the tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as further changes to the U.S. government tariff policies, negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of merchandise, and our buying organization’s ability to execute our merchandise sourcing model to offset the effects of the tariffs. Further, actions we take to adapt to new tariffs or trade restrictions may increase risk or may cause us to modify our operations, which could be time-consuming and expensive; impact pricing of our merchandise, which could impact our sales, , and our reputation as a value retailer; or cause us to forgo business .
Changes in economic conditions, on a global level or in particular markets, may adversely affect our sources of liquidity and costs of capital and increase our financial exposure, and our strategies for managing these financial risks may not be effective or sufficient.
Global financial markets can experience volatility, disruption and credit contraction, which could adversely affect global economic conditions. On occasion, we borrow money to finance our activities, and if financing were not available to us in adequate amounts and on appropriate terms when needed, that could adversely affect our financial performance. Changes in the capital and credit markets and general market disruptions, such as prolonged volatility or significant disruption of global financial markets relating to the financial and regulatory environment; interest rate fluctuations; geopolitical conflict; and disruptions impacting traditional banking, have in the past increased and may continue to increase the cost of financing or may restrict our access to potential sources of liquidity on acceptable terms or at all, and impede our ability to comply with debt covenants. In addition, changes in economic conditions could affect plan asset values and investment performance and increase our pension liabilities, expenses and funding requirements and other related financial exposure with respect to company-sponsored and multiemployer pension plans. We rely on banks and other financial institutions to safeguard and allow ready access to assets such as cash and cash equivalents. Our continued access to liquidity sources on terms also depends on factors such as our operating performance and maintaining credit ratings. Our strategies for managing these financial risks and exposures may not be or sufficient or may us to risk.
Our results may be adversely affected by severe or unseasonable adverse weather, serious disruptions, catastrophic events or public health crises.
Natural or other disasters, such as hurricanes, tornadoes, floods, wildfires, earthquakes and other extreme weather; climate conditions, which have continued to increase in severity and frequency; public health issues, such as pandemics and epidemics (such as the COVID-19 pandemic); fires or explosions; acts of war or conflict (such as the ongoing Russia-Ukraine conflict, the ongoing conflict in the Middle East and shipping disruptions in the Red Sea and surrounding waterways); domestic or foreign terrorism or other acts of violence (including riots or active shooter situations); or cyberterrorism, nation-state cyber-attacks, or other cyber events could disrupt our operations and/or have an adverse effect on our results of operations and financial condition in a number of ways. These effects could include causing injury or serious harm to our Associates or customers; or one or more of our stores, distribution facilities, or office facilities; or the operations of, or requiring the of, third-party service providers, one or more of our vendors or parts of our supply chain located in the affected areas.
Day-to-day operations, including our ability to receive products from our vendors or third-party service providers or to transport products to our stores or to our e-commerce customers could be adversely affected, transportation to and from our stores (by customers or Associates) could be limited, or we could temporarily close stores or facilities within our distribution network in the affected areas or in areas served by affected facilities for a short or extended period of time.
Government regulations and responses to such events or conditions could affect our operations or result in material expenses relating to compliance. Our business continuity and disaster recovery plans may not be adequate to address all potential scenarios, particularly those involving disruptions of unprecedented scope, severity, or duration. Our ability to recover from a significant disruption may depend on factors beyond our control, including the availability of transportation, utilities, labor, and third-party services in the affected areas. Adverse or unseasonable weather, such as storms, severe cold or heat or unseasonable temperatures (even if not extreme), which could increase in both frequency and severity over time, may also affect customers’ buying patterns and willingness to shop at all or in certain categories we offer, particularly in apparel, products viewed as contributing to deforestation or biodiversity loss, or seasonal merchandise, and may affect our ability to source products containing raw materials whose yield is affected by adverse weather, which could impact our sales, customer with our stores, and our , affecting our business.
As our business is subject to seasonal influences, a significant, unplanned decrease in sales or margins, a severe disruption or other significant event that impacts our business during the second half of the year could have a disproportionately adverse effect on our operating results.
Our business is subject to seasonal influences; we generally realize higher levels of sales and earnings in the second half of the year, which includes the back-to-school and year-end holiday seasons. Any significant, unplanned decrease in sales or margins or any significant adverse event or disruption that impacts our business during this period, including those described in these risk factors, could have a disproportionately adverse effect on our results of operations.
Our results may be adversely affected by increased utility, transportation or logistics costs; reduced availability or increased cost of oil or other fuels; or increased costs of other commodities.
Energy and fuel costs can fluctuate dramatically and, at times, have resulted in significant cost increases, particularly for the price of oil and gasoline. An increase in the price of oil increases our transportation costs for distribution, utility costs for our retail stores and costs to purchase our products from vendors. Although we typically enter into derivative instruments designed to manage a portion of our transportation costs (a hedging strategy), any such strategy may not be effective or sufficient and could result in increased operating costs. Increased global and U.S. regulation related to environmental costs, including cap and trade, carbon taxes or other emissions management systems could also adversely affect our costs of doing business, including utility, transportation and logistics costs. Shortages or disruptions, including from increased demand, geopolitical conflicts and other factors, impacting transportation within our supply chain, also negatively impact our cost of business and cause costs to fluctuate in ways we may not be able to anticipate. For example, in recent years, increased freight costs related to labor, equipment and capacity shortages involving freight hauling, increased interest rates and other factors, had an impact on our margins. Geopolitical events have in the past and may again impact fuel resources and operations of third parties along our supply chain such that our inventory flow and financial performance is impacted. Similarly, other commodity prices can fluctuate dramatically. Commodity price increases can impact the cost of merchandise, which could affect our performance through potentially reduced consumer demand or reduced margins.
Fluctuations in currency exchange rates may lead to lower revenues and earnings.
Sales made by our stores outside the U.S. are denominated in the currency of the country in which the store is located, and changes in currency exchange rates affect the translation of the sales and earnings of these businesses into U.S. dollars for financial reporting purposes. As a result, movements in currency exchange rates have had, and are expected to continue to have, a significant impact on our consolidated and segment results from time to time. Changes in currency exchange rates can also increase the cost of inventory purchases that are denominated in a currency other than the local currency of the business buying the merchandise. When exchange rates change significantly in a short period or move unfavorably over an extended period, it can be difficult for us to adjust accordingly, and gross margin can be adversely affected. For example, a significant amount of merchandise we offer for sale is made in China and accordingly, a revaluation of Chinese currency, or increased market flexibility in the exchange rate for that currency, increasing its value relative to the U.S. dollar or currencies in which our stores are located, could be significant.
Additionally, we routinely enter into inventory-related derivative instruments (a hedging strategy) to mitigate the impact of currency exchange rates on merchandise margins resulting from merchandise purchases by our segments denominated in currencies other than their local currencies. These mitigation strategies may not be effective or sufficient. In addition, in accordance with GAAP, we evaluate the fair value of these derivative instruments and make mark-to-market adjustments at the end of each accounting period. These adjustments are of a much greater magnitude when there is significant volatility in currency exchange rates and may have a significant impact on our earnings.
We expect that currency exchange rate fluctuations could have a material adverse effect on our sales and results of operations from time to time. In addition, fluctuations in currency exchange rates may have a greater impact on our earnings and operating results if a counterparty to one of our hedging arrangements fails to perform.
REGULATORY, LEGAL AND COMPLIANCE RISKS
Failure to comply with laws, rules, regulations and orders and applicable accounting principles and interpretations could negatively affect our business operations and financial performance.
We are subject to national, state, provincial, regional and local laws, rules, regulations, mandates, accounting standards, principles and interpretations, as well as government orders in various countries in which we operate that collectively affect multiple aspects of our business. We are also subject to new and changing laws, rules and regulations, mandates, evolving interpretations of existing laws by judicial and regulatory authorities, changes in accounting standards, principles or interpretations and reforms in jurisdictions where we do business. These requirements, current or changing, could adversely affect our operating results and may affect our operations, and include those involving:
– labor and employment practices, including pay and benefits, worker classification, work authorization, and labor unions and works councils;
– import/export, supply chain, social compliance, and trade restrictions and logistics, including resulting from changes to requirements or policies from the Uyghur Forced Labor Prevention Act, the Countering America’s Adversaries Through Sanctions Act and the continuation of widespread sanctions as a result of the ongoing Russia-Ukraine conflict;
– climate change, energy, waste, deforestation, biodiversity, chemicals management and water;
– consumer protection, product safety and product compliance;
– marketing;
– financial regulations and reporting, including various climate-related financial disclosure regulations;
– tax;
– cybersecurity, data protection and privacy;
– artificial intelligence;
– internet regulations, including e-commerce, electronic communications and privacy;
– protection of intellectual property rights;
– health, welfare and safety requirements; and
– compliance with governmental assistance programs.
Complying with applicable laws, rules, regulations, standards, interpretations, orders and our own internal policies may require us to spend additional time and resources to develop and implement new policies, procedures and other controls, consolidate and report additional data, conduct audits, train Associates and third parties on our compliance methods, or take other actions, particularly as we continue to grow globally and enter new markets, countries, or product categories and affect our operations including where, what, and how we source and how we allocate what we buy, any of which could adversely impact our results. Particularly in a dynamic regulatory environment, anticipated changes to laws and regulations have required, and are expected to continue to require, us to invest in compliance efforts or otherwise expend resources before changes are certain. There have been and continue to be changes to federal policy and the federal government in the U.S., which have impacted, and may continue to impact, among other things, the U.S. and global economy, international trade relations, unemployment, immigration, healthcare, taxation, and the U.S. regulatory environment.
In addition, if we, or third parties that perform services on our behalf, including those operating retail businesses, fail to comply with applicable laws, rules, regulations, standards, interpretations and orders, or are unable to provide us with data or other information needed to meet our regulatory reporting obligations, we may be subject to judgments, fines or other costs or penalties, which may cause reputational harm and could adversely affect our operations and our financial results and condition.
Our results may be materially adversely affected by the outcomes of litigation, legal proceedings and other legal or regulatory matters.
We are involved in, and may in the future become involved in additional, legal proceedings, regulatory reviews, audits and other legal matters. These may involve inquiries, investigations, lawsuits and other proceedings by local, provincial, state and national governmental entities (in the U.S. and other countries) and private plaintiffs, including with respect to employment and employee benefits (such as classification, employment rights, discrimination, wage and hour, retirement, health and other benefits, retaliation, work authorization and pay transparency); whistleblower claims; harassment claims; tax; securities; disclosure; real estate; environmental matters; hazardous materials and hazardous waste; torts; business practices; consumer protection; potential tariff refunds; privacy/cybersecurity; product safety and compliance; advertising; and intellectual property. There continue to be employment-related and consumer protection lawsuits, including putative class actions, in the United States, and we are subject to these types of suits. We cannot predict the results of legal and regulatory proceedings with certainty, and actual results may differ from any reserves we establish estimating the probable outcome. Regardless of merit or outcome, these proceedings can be both time-consuming and to our operations and may cause reputational as well as significant expense and of management attention. Legal, regulatory and other proceedings could us to significant defense costs, , and liability to private parties and governmental entities for monetary recoveries and other amounts and attorneys’ fees and/or require us to change aspects of our operations, any of which could have a material effect on our business and results of operations.
Quality, safety or other issues with merchandise we buy and sell could impact our reputation, sales and financial results.
Various governmental authorities in the jurisdictions where we do business regulate the quality and safety of the merchandise we import, transport and sell to consumers. Regulations and standards in this area, including federal laws and regulations enforced by the U.S. Consumer Product Safety Commission (such as the Consumer Product Safety Improvement Act of 2008) and the U.S. Food and Drug Administration (such as the U.S. Food Safety Modernization Act), state laws and regulations like California’s Proposition 65 and similar obligations in other countries in which we operate, impose restrictions and requirements on the merchandise we buy and sell. These requirements change from time to time, and new national, state, provincial or local regulations in the U.S. and other countries that may affect our business are contemplated and enacted with some regularity. We rely on our vendors to provide quality merchandise that complies with applicable laws and regulations and our vendor code of conduct. However, our vendors have not always complied with such obligations. If we, our vendors, or other third parties performing services on our behalf are unable or fail to comply with regulatory requirements on a timely basis or at all, or to adequately monitor new regulations that may apply to existing or new merchandise categories or in new geographies, or if we sell non-compliant, , or previously products, we could have to conduct product , incur significant or for non-compliance with applicable laws and regulations and have to some aspects of our sales or operations, any of which could have an effect on our financial results. of non-compliance with applicable laws and regulations could, and in certain instances in the past have, us to or governmental enforcement action. Although our arrangements with our vendors frequently provide for indemnification for product liabilities, the vendors may to these obligations to an extent we consider sufficient or at all. In certain circumstances, we may bear some responsibility for compliance with applicable product safety laws, labeling requirements and other applicable laws and regulations. In addition, to comply with, or the perception that we have to comply with, other social compliance, product, labor and/or environmental standards or monitoring practices, all of which continue to evolve, related to the products we sell could subject us to reputational and impact our financial results.
Concerns or issues with the quality, safety and sourcing of merchandise, particularly with products subject to increased levels of regulation or inquiry, or the authenticity of merchandise, could result in regulatory, civil or criminal fines or penalties; litigation or reputational harm, any of which could have an adverse effect on our financial results.
Tax matters could adversely affect our results of operations and financial condition.
We are subject to income and other taxes in the U.S. and numerous foreign jurisdictions. Our effective income tax rate and future tax liability could be adversely affected by numerous factors including the results of tax audits; income before taxes being lower than anticipated in countries with lower statutory income tax rates and higher than anticipated in countries with higher statutory income tax rates; changes in income tax rates; changes in transfer pricing; changes in the valuation of deferred tax assets and liabilities; changes in applicable tax legislation, regulations, treaties and other guidance; and changes in accounting principles and interpretations relating to tax matters, any of which could adversely impact our results of operations and financial condition in future periods. Significant judgment is required in evaluating and estimating our worldwide provision and accruals for taxes, and actual results may differ from our estimations.
In addition, we are subject to the continuous examination of our tax returns and reports by national, state, provincial and local tax authorities in the U.S. and foreign countries, and the examining authorities may challenge positions we take. We are engaged in various proceedings, which are at various stages, with such authorities with respect to assessments, claims, deficiencies and refunds. We regularly assess the likely outcomes of these proceedings to determine the adequacy and appropriateness of our provision for income taxes, and we increase and decrease our provision as a result of these assessments. However, developments in and actual results of proceedings, rulings or settlements by or with tax authorities or courts (including due to changes in facts, law or legal interpretations, expiration of applicable statutes of limitations or other resolutions of tax positions) could result in amounts that differ from those we have accrued for such proceedings in either a positive or a negative manner, which could materially affect our effective income tax rate in a given financial period, the amount of taxes we are required to pay and our results of operations. In addition, we are subject to tax audits and examinations for payroll, value added, sales-based and other taxes relating to our businesses, which could impact our financial results.
