Item 1A.
Risk Factors:
An investment in our common stock involves numerous types of risks.
You
should carefully consider
the
following
risk
factors,
in
addition
to
the
other
information
contained
in
this
report,
including
the
disclosures
under
“Forward-looking
Information”
above
in
evaluating
our
Company
and
any
potential
investment
in
our
common
stock.
If
any
of
the
following
risks
or
uncertainties
occur
or
persist,
our
business, financial condition and
operating results could
be materially and
adversely affected, the
trading
price
of
our
common
stock
could
decline
and
you
could
lose
all
or
a
part
of
your
investment
in
our
common
stock.
The
risks
and
uncertainties
described
in
this
section
are
not
the
only
ones
facing
us.
Additional risks
and uncertainties
not presently
known to
us or
that we
currently deem
immaterial
may
also materially
and adversely
affect
our business,
operating results,
financial condition
and value
of our
common stock.
Risks Relating to Our Business:
Continued high interest rates and inflationary conditions 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
deter our
customers from
purchasing discretionary
items such
as apparel,
shoes and
jewelry.
Continued
inflationary pressures
limit our
customers’ willingness
to purchase
apparel, shoe
or jewelry
products, as
prices associated
with non-discretionary
items, including
food, fuel
and shelter
costs increase
or remain
high,
reducing
our
customers’
discretionary
income.
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.
Because we source a significant portion of our merchandise directly
and indirectly from overseas,
we are subject to risks associated with changes, disruptions, increased
costs or other problems
affecting the Company’s merchandise supply chain; the risks of conducting international
operations and risks that affect the prevailing social, economic, political, public health
and other
conditions in the areas from which we source merchandise have
and could continue to materially
and adversely affect the Company’s business, results of operations and financial condition.
11
A significant amount of our merchandise is manufactured overseas, principally in Southeast Asia. We
are
subject
to
supply
chain
disruptions
affecting
transit
times
and
costs,
including
issues
related
to
a
sustained drought
in Panama
that is
causing longer
transit times
through the
Panama Canal
and limiting
the number of containers on a vessel due to vessel draft restrictions.
We
also face 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 continued issues
have and
may continue to
drive up our
ocean freight costs,
delay merchandise deliveries,
and impact our
ability to access the already limited supply of
ocean container shipping capacity that we require.
We
also
are
subject
to
domestic
supply
chain
disruptions,
including
lack
of
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
to result in
both
higher costs to transport our merchandise and delayed merchandise arrivals to our stores, which adversely
affect our ability to sell this merchandise and increase markdowns of it.
We
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 on materials
primarily sourced from China.
As a result,
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
to
communicable
diseases
(such
as
COVID-19),
financial
or
other
forms
of
instability
or
other
events
resulting in
the
disruption
of
trade
from
countries
affecting
our
supply
chain,
increased
security
requirements for imported
merchandise, or the
imposition of, or
changes in, laws,
regulations or changes
in duties,
quotas, tariffs,
taxes or
governmental policies
regarding or
responses to
these matters
or other
factors
affecting
the
availability
or
cost
of
imports.
In
addition,
geopolitical
tensions,
sanctions,
prohibitions,
additional
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.
Our costs are
also affected by currency
fluctuations, and changes in
the value of the
dollar relative to
foreign currencies have impacted and may continue to impact our cost of goods sold. Any of these
factors
can materially
and adversely affect
our business
and results
of operations.
In addition,
increased energy
and transportation
costs have
caused
us significant
cost increases
from time
to
time, and
future adverse
changes
in
these
costs
or
the
disruption
of
the
means
by
which
merchandise
is
transported
to
us
could
cause additional
cost increases
or interruptions
of our
supply chain,
which could
be significant.
Further,
we are subject to
increased costs or potential disruptions
impacting any port or
trade route through which
our products
move, or we
may be
subject to
increased costs
and delays if
forced to route
freight through
different
ports
than
the
ones
through
which
our
products
typically
move.
If
we
are
forced
to
source
merchandise from
other countries
or other
domestic vendors
with foreign
sources in
different
countries,
those goods may be more expensive or of a different or inferior quality from the ones we
now sell.
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 to ensure
that product is produced on time and
within the
Company’s
specifications,
our
business,
brand,
reputation,
costs,
results
of
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.
To
the
extent
we
explore
other
countries
to
source
our
product
or
explore
12
increasing
the
amount
of
product
sourced
from
current
countries,
we
may
be
subject
to
additional
increased
legal
and
operational risks
associated
with
doing
business
in
new
countries
or
increasing our
business in other countries.
Further,
the
activities
conducted
by
our
sourcing
offices
outside
the
United
States
subject
us
to
foreign operational risks,
as well as
U.S. and international regulations
and compliance risks, as
discussed
elsewhere
in
this
“Risk
Factors”