Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
You should carefully consider the risk factors discussed in the section of the Annual Report entitled "Risk Factors", as updated by the section entitled "Risk Factors" in each of our Quarterly Report on Form 10-Q for the quarter ended May 1, 2021 and our Quarterly Report on Form 10-Q for the quarter ended July 31, 2021, which could materially affect our business, financial condition or future results. The risks described in the Annual Report are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. In addition to the effects of the COVID-19 pandemic and resulting global disruptions on our business and operations discussed in the MD&A in this Quarterly Report and in the Risk Factors section of the Annual Report, additional or unforeseen effects from the COVID-19 pandemic and the global economic climate may give rise to or amplify many of these risks. Except as set forth below and as reported in our Quarterly Report on Form 10-Q for the quarter ended May 1, 2021 and our Quarterly Report on Form 10-Q for the quarter ended July 31, 2021, there have been no material changes to the risk factors discussed in the section of the Annual Report entitled "Risk Factors".
Our business is significantly dependent on our ability to meet our labor needs.
The success of our business depends significantly on our ability to hire and retain quality team members, including store managers, Enthusiasts and other store team members, distribution center team members, and corporate directors, managers and other personnel. We plan to expand our team member base to manage our anticipated growth. Competition for non-entry-level personnel, particularly for team members with retail experience, is highly competitive. Additionally, our ability to maintain consistency in the quality of customer service in our stores is critical to our success. Many of our store team members are in entry-level or part-time positions that historically have high rates of turnover. We are also dependent on the team members who staff our distribution centers, many of whom are skilled. We may be unable to meet our labor needs and control our costs due to external factors such as the availability of a sufficient number of qualified persons in the work force of the markets in which we operate, competition, unemployment levels, demand for certain labor expertise, prevailing wage rates, wage inflation, changing demographics, health and other insurance costs, adoption of new or revised employment and labor laws and regulations, and the impacts of man-made or natural disasters, such as tornadoes, hurricanes, and the COVID-19 pandemic.
Recent or potential future legislative initiatives may seek to increase the federal minimum wage in the United States, as well as the minimum wage in a number of individual states. As federal or state minimum wage rates increase, we may need to increase not only the wage rates of our minimum wage team members, but also the wages paid to our other hourly team members as well. Further, should we fail to increase our wages competitively in response to increasing wage rates, the quality of our workforce could decline, causing our customer service to suffer. Additionally, the U.S. Department of Labor has proposed rules that may have salary and wage impact for “exempt” team members, which could result in a substantial increase in store payroll expense. Any increase in the cost of our labor could have an adverse effect on our operating costs, financial condition and results of operations. If we are unable to hire and retain store-level team members capable of providing a high level of customer service, skilled distribution center team members or other qualified personnel, our business could be materially adversely affected.
Although none of our team members are currently covered under collective bargaining agreements, we cannot guarantee that our team members will not elect to be represented by labor unions in the future. If some or our entire workforce were to become unionized and collective bargaining agreement terms were significantly different from our current compensation arrangements or work practice, it could have a material adverse effect on our business, financial condition and results of operations.
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Additionally, on November 5, 2021, the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) issued an Emergency Temporary Standard on Vaccination and Testing (the “ETS”) regarding workplace safety relating to COVID-19, which generally requires employers with more than 100 employees, like Academy, to mandate either regular testing and face covering-wearing or COVID-19 vaccinations for unvaccinated employees beginning on January 4, 2022. On November 12, 2021, the U.S. Court of Appeals for the Fifth Circuit issued an order staying enforcement and implementation of the ETS pending further judicial review. Since then, the various federal circuit courts lawsuits challenging the ETS have been consolidated in Multi-District Litigation and the U.S. Court of Appeals for the Sixth Circuit was chosen on November 16, 2021 to consider the merits of the cases and decide whether to dissolve or uphold the Fifth Circuit’s injunction. The case remains under review by the Sixth Circuit. Meanwhile, OSHA said that, while it is confident in its authority to protect workers in emergencies, it has suspended activities related to the implementation and enforcement of the ETS pending future developments in the litigation. If the ETS is enforced, we may experience adverse impacts on our workforce, across all functional areas, at our stores and distribution centers in particular, and the workforce of our vendors to the extent that any of these workers are unavailable to work because they either fail the weekly testing requirement or fail to vaccinate in compliance with the ETS, which could require us to adapt our operations. We may also experience increased expenses relating to any ETS-required support pay we must make in compliance with the ETS to employees who need time to get vaccinated and recover from vaccination during work hours. The requirements of the ETS and the potential adverse impact on our workforce, and that of our vendors, could have a material adverse effect on our financial position, results of operations or cash flows.
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