What changed in this filing

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Item 1A. Risk Factors

2025-03-06 compared with 2024-03-07 · 64 added, 46 removed, 867 unchanged (11% of the section changed)

13 unchanged sentences

• Our use of third-party suppliers and manufacturers that are primarily based in China exposes us to risks inherent in doing business there;

• Changes to U.S., Australian or international trade policy, tariff or import/export regulations or our failure to comply with such regulations may have a material adverse effect on our reputation, business, financial condition and results of operations.

• We face risks to our operating results if we fail to manage our inventory effectively;

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fluctuating commodity prices;

fluctuating tariffs;

and general uncertainty regarding the overall future political and economic environment.

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China’s economy differs from the economies of developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources.

Further, on February 1, 2025, President Trump announced a new 10% ad valorem duty on goods imported from China and on February 27, 2025, President Trump announced his plan to impose an additional incremental 10% tariff on goods imported from China.

There can be no assurances that the U.S.

or China will not increase tariffs or impose additional tariffs in the future.

Further, with the rapid development of the Chinese economy, the cost of labor has increased and may continue to increase in the future.

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See “—Risks Relating to Laws and Regulation—Changes in laws or regulations relating to data privacy and security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations relating to data privacy and security, could lead to government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.”

Merchandise returns could harm our business.

Merchandise returns could materially harm our business.

We allow our customers to return products, subject to our return policy.

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From time to time our products are also damaged in transit, which can increase return rates and harm our brand.

We purchase inventory in anticipation of sales, and if we are unable to manage our inventory effectively, our operating results could be adversely affected.

We purchase inventory in anticipation of sales, and if we are unable to manage our inventory effectively, our operating results could be materially adversely affected.

Our business requires us to manage a large volume of inventory, including precise quantities across a large number of different products, effectively.

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Our growth prospects are dependent on our ability to identify and acquire additional brands and integrate them on our platform, and our failure to do so may negatively impact our future growth and, as a result, our results of operations.

Finally, any acquisitions we do make may cause large one-time expenses or create goodwill or other intangible assets that could result in significant impairment charges, such as the recent impairment charges related to the Culture Kings and Petal & Pup reporting unit goodwill (see Note 6, “Goodwill,” in the notes to our consolidated financial statements included in this Annual Report on Form 10-K).

Finally, any acquisitions we do make may cause large one-time expenses or create goodwill or other intangible assets that could result in significant impairment charges.

We also make certain estimates and assumptions in order to determine purchase price allocation and estimate the fair value of assets acquired and liabilities assumed.

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• we may have difficulty recruiting, developing or retaining qualified employees;

• we may not be able to manage our growth effectively, adapt our business model or develop relationships with customers or successfully operate our Culture Kings and Princess Polly brick-and-mortar stores, including our first flagship U.S.

Culture Kings store in Las Vegas, which exposes us to premises liability, such as slip and falls, and may subject us to greater potential labor union activity;

• we may not be successful in opening new brick-and-mortar stores, including the planned Princess Polly locations in the U.S.;

• we may not be successful in opening new brick-and-mortar stores, including the additional planned Princess Polly locations in the U.S.;

• we may not be successful in securing wholesale partnerships or securing favorable terms;

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Expanding into new countries and regions involves significant risk, particularly if we have no experience in marketing, selling and engaging with customers in the market.

For example, in November 2022, we opened our first U.S.

flagship store for our brand, Culture Kings, in Las Vegas, Nevada.

There is no guarantee that the success of a brand in Australia will translate to the success of that brand in other countries, such as the U.S.

For example, we plan to open our first Princess Polly store in New York City in the first quarter of 2025.

There is no guarantee that the success of a brand in Australia will translate to the success of that brand in other countries, such as the U.S., and there is no guarantee that our success in certain locations in the U.S.

will translate to success in other locations in the U.S.

Our efforts to expand into new countries and regions could fail for many reasons, including our failure to accurately or timely identify apparel trends in new markets, different consumer demand dynamics and lack of acceptance of new offerings by existing or new users, our failure to promote the new markets effectively or negative publicity about us or our new markets.

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If we are unable to cost-effectively expand into new countries and regions, then our growth prospects and competitive position may be harmed and our business, results of operations, and financial condition may suffer.

A growing portion of our revenue is derived from wholesale and third-party marketplace partners, and the loss of any of these wholesale or third-party marketplace partners could reduce our total revenue.

We have entered into a number of wholesale and third-party marketplace partnerships and intend to continue growing these initiatives.

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Consumer demand and behavior, as well as cultures, and tastes and purchasing trends, may differ, and as a result, sales of our merchandise may not be successful, or the margins on those sales may not be in line with our expectations.

Our ability to conduct business internationally may be adversely impacted by geopolitical (such as the Russian invasion of Ukraine, relations between China and Taiwan, or the ongoing conflict in the Middle East), economic, and public health events, the manner in which governments respond to such events, as well as the global economy.

Our ability to conduct business internationally may be adversely impacted by geopolitical (such as the Russian invasion of Ukraine, relations between China and Taiwan, trade wars, or relations between the U.S.

and Mexico), economic, and public health events, the manner in which governments respond to such events, as well as the global economy.

Any challenges that we encounter as we expand internationally may divert financial, operational and managerial resources from our existing operations, which could adversely impact our financial condition and results of operations.

Shipping is a critical part of our business and any interruptions in, or increased costs of, shipping could adversely affect our operating results.

Shipping is a critical part of our business and any interruptions in, or increased costs of, shipping could materially adversely affect our operating results.

We currently rely on third-party vendors for our inbound and outbound customer freight.

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We are also subject to risks of damage or loss during delivery by our shipping vendors.

If our merchandise is not delivered in a timely manner or is damaged or lost during the delivery process, our consumers could become dissatisfied and cease purchasing our products, which would adversely affect our business and operating results.

Our direct-to-consumer business model is subject to risks that could have an adverse effect on our results of operations.

If our merchandise is not delivered in a timely manner or is damaged or lost during the delivery process, our consumers could become dissatisfied and cease purchasing our products, which would materially adversely affect our business and operating results.

Our direct-to-consumer business model is subject to risks that could have a material adverse effect on our results of operations.

We sell merchandise direct-to-consumer through our eCommerce sites.

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Risks specific to operating an eCommerce business also include (i) the ability to optimize the online experience and direct eCommerce channels to consumer needs, (ii) liability for copyright and trademark infringement, (iii) changing patterns of consumer behavior and (iv) competition from other eCommerce and brick-and-mortar retailers.

Our failure to successfully respond to these risks might adversely affect our sales, as well as damage our reputation and brands.

Our failure to successfully respond to these risks might materially adversely affect our sales, as well as damage our reputation and brands.

Use of social media and influencers may materially and adversely affect our reputation or subject us to fines or other penalties.

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Furthermore, as laws, regulations, policies governing platforms and public opinion rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees, our network of social media influencers or third parties acting at our direction to abide by applicable laws, regulations and policies in the use of these platforms and devices or otherwise could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties and have a material adverse effect on our business, financial condition and operating results.

Further, if the use of these platforms are banned or otherwise limited in significant jurisdictions in which we operate, it could have a material adverse effect on our ability to market and engage in sponsorship initiatives in such jurisdictions.

For example, on April 24, 2024, then-President Biden signed a bill that provided for the ban of TikTok in the United States, effective January 19, 2025, if ByteDance Ltd.

(“ByteDance”), TikTok’s Chinese-based parent company, did not sell the platform to a non-Chinese owner (the “U.S.

TikTok Ban”).

On January 20, 2025, President Trump instructed the Attorney General of the United States not to take any action to enforce the U.S.

TikTok Ban for a period of 75 days.

There can be no assurance that ByteDance will sell TikTok to a non-Chinese owner or that the U.S.

TikTok Ban will not be enforced.

Although our TikTok accounts are managed by Australian employees and, therefore, we will still have access to TikTok if the U.S.

TikTok Ban is enforced, the TikTok ban could have a material adverse effect on our ability to market, and the efficacy of such marketing, and engage in sponsorship initiatives in the U.S., which could have a material adverse effect on our results of operations.

Our relationships with social media influencers and our sponsorship initiatives do not include any contractual commitments that they continue to be supportive of our brands or products, and there can be no assurance that they will continue to do so.

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In addition, limitations, changes or errors with respect to how we measure data may affect our understanding of certain details of our business, which could affect our longer-term strategies.

If our performance metrics are not accurate representations of the reach or monetization of our brand, if we discover material inaccuracies in our metrics or the data on which such metrics are based, or if we can no longer calculate any of our key performance metrics with a sufficient degree of accuracy and cannot find an adequate replacement for the metric, our business, financial condition and operating results could be adversely affected.

Our business and the success of our products could be harmed if we are unable to maintain our corporate integrity or the images and reputation of our brands.

Our business and the success of our products could be materially harmed if we are unable to maintain our corporate integrity or the images and reputation of our brands.

Our success to date has been due in large part to the growth of our brands’ images and our customers’ connection to our brands.

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If consumers begin to have negative perceptions of our brands, whether or not warranted, our brand image would become tarnished and our products would become less desirable, which could have a material adverse effect on our business.

We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our consumers would have to pay for our offering and adversely affect our operating results.

We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our consumers would have to pay for our offerings and adversely affect our operating results.

In general, we have not historically collected state or local sales, use or other similar taxes in any jurisdictions in which we do not have a tax nexus, in reliance on court decisions or applicable exemptions that restrict or preclude the imposition of obligations to collect such taxes with respect to online sales of our products.

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Further, these events and disruptions could increase insurance and other operating costs, including impacting our decisions regarding construction of new facilities to select areas less prone to climate change risks and natural disasters, which could result in indirect financial risks passed through the supply chain or other price modifications to our products and services.

Global health crises, such as the COVID-19 pandemic or any other actual or threatened epidemic, pandemic, or outbreak and spread of a communicable disease or virus in the countries where we operate or sell products could adversely affect our operations and financial performance.

Global health crises or any other actual or threatened epidemic, pandemic, or outbreak and spread of a communicable disease or virus in the countries where we operate or sell products could adversely affect our operations and financial performance.

Further, any national, state or local government mandates or other orders taken to minimize the spread of a global health crisis could restrict our ability to conduct business as usual, as well as the business activities of our key customers and suppliers, including the potential for labor shortages.

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We do not currently maintain key-person life insurance policies on any member of our senior management team or other key employees.

On March 9, 2023, we announced that Jill Ramsey, our Chief Executive Officer, and our Board determined that Ms.

Ramsey would take time to work through unforeseen medical issues.

The Board also appointed Ciaran Long, our Chief Financial Officer, to serve as acting Chief Executive Officer on an interim basis.

On November 7, 2023, we announced that Ms.

Ramsey and our Board determined that Ms.

Ramsey will no longer serve as our Chief Executive Officer.

Long remains our interim Chief Executive Officer while our Board searches for a permanent Chief Executive Officer.

Any failure to identify a suitable permanent Chief Executive Officer candidate and ensure an effective transfer of knowledge and a smooth transition could impact our business strategy, our relations with investors, suppliers and customers and affect employee morale.

We also face significant competition for personnel.

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To the extent that we are unable to manage our growth effectively or are unable to attract and retain additional qualified management, we may not be able to expand our operations or execute our business plan.

Increases in labor costs, fluctuations in wage rates and the price, availability and quality of raw materials and finished goods could increase costs and could adversely affect our business, financial condition and results of operations.

Increases in labor costs, fluctuations in wage rates and the price, availability and quality of raw materials and finished goods could increase costs and could materially adversely affect our business, financial condition and results of operations.

Labor is a significant portion of our cost structure and is subject to many external factors, including unemployment levels, prevailing wage rates, minimum wage laws, potential collective bargaining arrangements, health insurance costs and other insurance costs and changes in employment and labor legislation or other workplace regulation , including at the federal level and in California and a number of other states.

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If we experience problems with our distribution and warehouse management systems, or if we do not successfully optimize, operate and manage the expansion of the capacity of our fulfillment centers, our ability to meet customer expectations, manage inventory, complete sales transactions and achieve objectives for operating efficiencies could be adversely affected.

In the U.S., we rely on fulfillment centers in California, which are operated by our third-party logistics provider, for all of our product distribution.

market, we primarily rely on third-party operated fulfillment centers in California for all brands, but have begun moving our fulfillment operations to Mexico for Petal & Pup and mnml, beginning in the fourth quarter of 2024.

Our fulfillment centers include computer-controlled and automated equipment and rely on a warehouse management system to manage supply chain fulfillment operations, which means their operations are complicated and may be subject to a number of risks related to cybersecurity, the proper operation of software and hardware, electronic or power interruptions or other system failures.

In addition, because most of our U.S.

fulfilled products are distributed from three primary fulfillment centers, our operations could also be interrupted by labor difficulties, or by floods, fires or other natural disasters near our fulfillment centers.

and Mexico fulfilled products are distributed from two primary fulfillment centers, our operations could also be interrupted by labor difficulties or changes in the U.S.

or Mexican political landscape, or by floods, fires or other natural disasters near our fulfillment centers.

For example, in December 2024, the Mexican government issued a presidential decree which prevented us from accepting incoming deliveries to our Mexico fulfillment center.

We were still able to fulfill out of the Mexico fulfillment center with the inventory remaining on hand, and were successfully able to divert inventory inbound to Mexico at the time of the decree to our facilities in California.

We maintain business interruption insurance, but it may not adequately protect us from the adverse effects that could result from significant disruptions to our distribution system, such as the long-term loss of customers or an erosion of our brand image.

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If we are unable to evolve with our customers’ and employees’ expectations and standards, our brand, reputation and customer and employee retention may be negatively impacted.

Conversely, in recent years “anti-ESG” sentiment has gained momentum across the U.S., with several states and Congress having proposed or enacted “anti-ESG” policies, legislation, or initiatives or issued related legal opinions, and the Trump Administration having recently issued an executive order opposing diversity equity and inclusion (“DEI”) initiatives in the private sector.

Such anti-ESG and anti-DEI-related policies, legislation, initiatives, litigation, legal opinions and scrutiny could result in additional compliance obligations, becoming the subject of investigations and enforcement actions, or sustaining reputational harm.

Our balance sheet includes a significant amount of intangible assets and goodwill.

A decline in the fair value of an intangible asset or of a business unit could result in an asset impairment charge, such as the recent goodwill impairment charges related to the Culture Kings and Petal & Pup reporting units.

A decline in the fair value of an intangible asset or of a business unit could result in an asset impairment charge .

Our policy is to evaluate indefinite-lived intangible assets and goodwill for possible impairment as of the beginning of the fourth quarter of each year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount.

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Our business and results of operations could be adversely affected by climate change and the adoption of new climate change laws, policies and regulations.

Growing concerns about climate change and greenhouse gas emissions have led to the adoption of various regulations and policies, including the Paris Agreement negotiated at the 2015 United Nations Conference on Climate Change, which requires participating nations to reduce carbon emissions every five years beginning in 2023.

Growing concerns about climate change and greenhouse gas emissions have led to the adoption of various regulations and policies.

Climate change may impact our business in numerous ways.

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and Australia, economic sanctions on individuals, corporations or countries, and other government regulations affecting trade between the U.S., Australia and other countries where we conduct our business.

Specifically, President Trump has announced plans to impose broad-based tariffs on imports from many countries, including China, in which many of our third-party suppliers and manufacturers are based.

will not increase tariffs or impose additional tariffs in the future, or the manner in which China and its trade partners will respond.

It may be time-consuming and expensive for us to alter our business operations in order to adapt to or comply with any such changes.

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Any slowdown or failure of our sites and the underlying technology infrastructure could harm our business, reputation and our ability to acquire, retain and serve our customers, which could materially adversely affect our results of operations and our business interruption insurance may not be sufficient to compensate us for the losses that could occur.

Our use of artificial intelligence and machine learning could adversely affect our business and operating results.

We may use artificial intelligence (“AI”) and machine learning in our business to, among other things, facilitate personalized customer journeys, predict shopping behaviors, optimize marketing, and streamline inventory planning and operational workflows.

Issues relating to our potential use of new and evolving technologies such as AI may cause us to experience brand or reputational harm, competitive harm, legal liability and new or enhanced governmental or regulatory scrutiny, and to incur additional costs to resolve such issues.

For example, AI algorithms are based on machine learning and predictive analytics, which can include unexpected biases and lead to discriminatory outcomes.

In addition, perceived or actual technical, legal, compliance, privacy, security, ethical or other issues relating to the use of AI could undermine the decisions, predictions or analysis that AI applications produce and create additional risks, such as risks of cybersecurity incidents, all of which could adversely affect our business and operating results.

The use of AI involves significant technical complexity and requires specialized expertise.

Any disruption or failure in AI-based systems or technology infrastructure could result in delays or errors in our operations, which could harm our business and operating results.

Moreover, developing, testing and deploying AI systems may also increase our operating expenses due to the nature of the computing costs involved in such systems.

Risks Relating to our Indebtedness

Any indebtedness we may incur in the future could adversely affect our business and growth prospects.

We entered into a credit facility concurrently with the completion of our initial public offering (“IPO”) in 2021.

We entered into a credit facility in September 2021.

Any indebtedness we may incur under our credit facility, or any other indebtedness we may incur in the future, could require us to divert funds identified for other purposes for debt service and impair our liquidity position.

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In addition, delisting from the NYSE may negatively impact our reputation and, consequently, our business.

We cannot assure you that our Reverse Stock Split will increase our stock price, marketability or our liquidity.

We cannot predict the long-term effect of the Reverse Stock Split upon the market price for shares of our common stock, and the history of similar Reverse Stock Splits for companies in like circumstances has varied.

Some investors may view a reverse stock split negatively.

We cannot assure you that our common stock will be more attractive to institutional or other long-term investors or that it will attract brokers and investors who trade in lower-priced stocks.

Even if the Reverse Stock Split has a positive effect on the market price for shares of our common stock, the market price and liquidity of our common stock may decrease due to other factors, including our future performance, economic conditions and other factors, some of which may not be under our control.

The percentage market price decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the Reverse Stock Split.

The total market capitalization of our common stock initially declined following the Reverse Stock Split and could decline in the future.

Accordingly, the Reverse Stock Split may not achieve the desired results of increasing the stock price, marketability and liquidity of our common stock, which could materially adversely affect our business, financial condition and results of operations.

We are obligated to develop and maintain proper and effective internal control over financial reporting in order to comply with Section 404 of the Sarbanes-Oxley Act.

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At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

As previously disclosed, we have two unremediated material weaknesses in the design and operation of our internal control over financial reporting initially identified in connection with the preparation of our financial statements for the fiscal years ended December 31, 2020 and 2019.

As previously disclosed, we have unremediated material weaknesses in the design and operation of our internal control over financial reporting in connection with the preparation of our financial statements, as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, that had not been remediated as of December 31, 2024.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

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The material weaknesses identified by management related to the following:

• We have not sufficiently designed, implemented and documented internal controls at the entity level and across the key business and financial processes to allow us to achieve complete, accurate and timely financial reporting.

• We have not designed and implemented controls to maintain appropriate segregation of duties in our manual and IT-based business processes.

• We had not sufficiently designed, implemented and documented internal controls at the entity level (an effective risk assessment process and control environment, specifically, a sufficient complement of personnel commensurate with our financial reporting requirements) and across key business and financial processes to allow us to achieve complete, accurate and timely financial reporting, including controls over journal entries.

• We had not designed and implemented controls to maintain appropriate segregation of duties in our manual and IT-dependent business processes, including journal entries, and with respect to certain information technology general controls for information systems relevant to the preparation of our financial statements, specifically, (i) program change management controls to ensure that program and data changes are identified, tested, authorized and implemented appropriately;

(ii) user access controls to adequately restrict user and privileged access to appropriate personnel;

(iii) computer operations controls to ensure that processing and transfer of data, and data backups and recovery are monitored;

and (iv) program development controls to ensure that new software development is tested, authorized and implemented appropriately.

Since identifying these material weaknesses, we have been, and are currently in the process of, remediating each of them.

While progress has been made to remediate both of the material weaknesses above, as of December 31, 2023, we were still in the process of developing and implementing enhanced processes and procedures and testing the operating effectiveness of these enhanced controls.

While progress has been made to remediate the material weaknesses above, as of December 31, 2024, we were still in the process of developing and implementing enhanced processes and procedures and testing the operating effectiveness of these enhanced controls.

We provided process and controls training and have incorporated ongoing training and monitoring as part of our overall control environment.

We implemented and continue to implement control improvements and have focused on the increased operational effectiveness of our controls.

We selected an enterprise resource planning system, hired an implementation partner and are in the process of implementation which will provide improvements to our IT-dependent and application controls to help prevent and detect errors, enforce segregation of duties and strengthen controls around manual journal entries.

We have made significant progress in the implementation of our new enterprise resource planning (“ERP”) system, which will provide improvements to our IT-dependent and application controls to help prevent and detect errors, enforce segregation of duties and strengthen controls around manual journal entries.

We believe our actions will be effective in remediating the material weaknesses, and we continue to devote significant time and attention to these efforts.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors