What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-03-28 compared with 2021-03-30 · 75 added, 67 removed, 163 unchanged (47% of the section changed)

ITEM 1A RISK FACTORS

An investment in our common stock involves certain risks and uncertainties.

In addition to other information in this Form 10-K, the following risk factors should be considered.

Additional risks and uncertainties of which we are currently unaware could also have a material adverse effect on our business and financial conditions.

MACROECONOMIC AND INDUSTRY RISKS

The coronavirus pandemic has adversely affected and continues to impact our business operations, store traffic and financial condition.

The coronavirus pandemic both in the U.S.

and globally, and related government and private sector responsive actions, has adversely affected and continues to impact our business operations.

Retail store traffic was significantly lower in 2020 as a result of COVID-19.

Supply chain disruptions and inflationary pressures may adversely impact our gross margin and earnings.

During 2021, we experienced supply chain disruptions and port congestion, which led to delays in the receipt of inventory and significantly higher freight costs.

Our in-transit inventory, which is not yet available to sell, has risen significantly as compared to historical levels.

Depending on the timing of receipt of this inventory, certain customers may request price concessions or choose to cancel their orders altogether, which may adversely impact sales or gross margins.

If we are unable to sell this in-transit inventory as planned, we may have to liquidate it through other less profitable channels, which may result in lower gross margins on those products.

We have also experienced inflationary pressures, including product and labor costs.

The extent and duration of these supply chain disruptions and inflationary cost pressures are uncertain and may limit our ability to meet incremental consumer demand, potentially impacting our net sales.

In addition, the existing union contract between the United States west coast port operators, Pacific Maritime Association and International Longshore and Warehouse Union, expires on June 30, 2022.

The vast majority of our products pass through the west coast ports and any slowdown or stoppage relating to these labor agreement negotiations may further delay the receipt of inventory or increase costs.

While we are actively working to mitigate the supply chain disruptions and cost pressures we are experiencing, including recovering our increased costs through price increases, there is no guarantee that we will be successful doing so.

The coronavirus pandemic continues to impact our business operations and financial condition.

The coronavirus (“COVID-19”) pandemic, both in the U.S.

and globally, continues to evolve and is unpredictable.

The pandemic has resulted in government and private sector responsive actions around the world, including restrictions on large gatherings of people, travel bans, border closings and restrictions, vaccine mandates, business closures or reduced hours, and delays in the workforce returning to the office.

While consumer demand rebounded in 2021 and we experienced significant growth in net sales and earnings, the COVID-19 pandemic continues to impact our business operations.

It is impossible to predict the effect and ultimate impact of COVID-19 and the impact on the economy, the retail industry and the Company.

The extent to which COVID-19 will continue to impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including the actions taken to contain it or treat its impact.

A delay in widespread distribution of a vaccine, or a lack of public acceptance of a vaccine could hamper consumer demand.

Further, there is no assurance that the vaccine will ultimately be successful in limiting or stopping the spread of COVID-19.

A continuation of the health crisis may have a material impact on the retail sector, consumer demand, and the Company’s results of operations and liquidity.

The extent to which COVID-19 will continue to impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including the emergence of additional variants.

A continuation of the health crisis may have a material impact on the retail sector, consumer demand, and the Company’s results of operations and financial condition.

The long-term economic impact of the pandemic and changes in consumer demand for our products cannot be reasonably predicted.

Consumer demand for our products may be adversely impacted by economic conditions and other factors.

Worldwide economic conditions continue to be uncertain.

Consumer confidence and spending are strongly influenced by general economic conditions and other factors, including the COVID-19 pandemic, fiscal policy, the changing tax and regulatory environment, interest rates, minimum wage rates and regulations, inflation, consumer debt levels, the availability of consumer credit, the liquidity of consumers’ assets, health care costs, currency exchange rates, taxation, energy costs, real estate values, foreclosure rates, unemployment trends, weather conditions and the economic consequences of military action or terrorist activities.

We experienced a decline in sales of dress footwear during 2020 due to limited social gatherings and the shift towards working from home as a result of the COVID-19 pandemic.

Consumer confidence and spending are strongly influenced by general economic conditions and other factors, including the pandemic, inflation, fiscal policy, the changing tax and regulatory environment, interest rates, minimum wage rates and regulations, consumer debt levels, the availability of consumer credit, the liquidity of consumers’ assets, health care costs, currency exchange rates, taxation, energy costs, real estate values, foreclosure rates, unemployment trends, weather conditions and the economic consequences of military action or terrorist activities, such as the current tensions in Eastern Europe and the potential impact of sanctions on the domestic and global economy.

Consumer sentiment, including a preference for products made in the United States, may be impacted by the war in Eastern Europe, which may impact demand for our products that are sourced internationally.

Negative economic conditions generally decrease disposable income and, consequently, consumer purchases of discretionary items like our products.

Negative trends in economic conditions could also drive up the cost of our products, which may require us to increase our product prices.

These increases in our product costs, and possibly prices, may not be offset by comparable increases in consumer disposable income.

Negative trends in economic conditions, such as the supply chain disruptions and inflationary pressures experienced during 2021, could also drive up the cost of our products.

We began implementing price increases at the end of 2021 and additional inflationary pressures may require us to increase our product prices further.

These increases in our product costs and prices may not be offset by comparable increases in consumer disposable income.

As a result, our customers may choose to purchase fewer of our products or purchase the lower priced products of our competitors, and our business, results of operations, financial condition and cash flows could be adversely affected.

The long-term economic impact of the COVID-19 pandemic and resulting global economic decline on consumer demand for our products cannot be reasonably predicted.

If we are unable to anticipate and respond to consumer preferences and fashion trends and successfully apply new technology, we may not be able to maintain or increase our net sales and earnings.

1 unchanged sentence

Our products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change.

In addition, the rapid consumer shift to online and mobile shopping, which was further accelerated by the COVID-19 pandemic, is requiring retailers to lower shipping costs charged to customers, improve shipping speeds and optimize mobile platforms.

The trend toward online and mobile shopping increases the volume of smaller shipments, including single-pair shipments, from our warehouses.

The increased volume of smaller shipments may result in higher average distribution costs, including both shipping and processing costs incurred at our distribution centers.

In addition, the continued consumer shift to online and mobile shopping has required retailers to lower shipping costs charged to customers, improve shipping speeds and optimize mobile platforms.

The trend toward online and mobile shopping has also increased the volume of smaller shipments, including single-pair shipments, from our warehouses.

The increased volume of smaller shipments has resulted in higher average distribution costs, including both shipping and processing costs incurred at our distribution centers.

In addition, an increase in e-commerce sales volume, which have higher return rates than in-store sales, may in turn lead to higher shipping and processing costs.

1 unchanged sentence

If we fail to respond to changes in consumer shopping patterns, demands and fashion trends, develop new products and designs, and implement effective, responsive merchandising and distribution strategies and programs, we could experience lower sales, excess inventories and lower gross margins, any of which could have an adverse effect on our results of operations and financial condition.

We operate in a highly competitive industry.

Competition is intense in the footwear industry.

There has also been consolidation of competitors in the industry, resulting in certain competitors that are larger and have greater financial, marketing and technological resources than we do.

In addition, a move toward vertical integration by our competitors could create additional competitive pressures that may decrease our market share.

Other competitors are able to offer footwear on a lateral basis alongside their apparel products, or have successfully branded their trademarks as lifestyle brands, resulting in greater competitive advantages.

to entry into this industry further intensify competition by allowing new companies to easily enter the markets in which we compete.

Some of our suppliers further compound these competitive pressures by allowing consumers to purchase their products directly through supplier-maintained e-commerce sites and retail stores.

The Internet facilitates price transparency and comparison shopping, which increases the level of competition we face and puts competitive pressure on us to keep our prices low.

We believe that our ability to compete successfully in the footwear industry depends on a number of factors, including style, price, performance, quality, location and service, as well as the strength of our brand names.

We remain competitive by increasing awareness of our brands, improving the efficiency of our supply chain and enhancing the style, comfort, fashion and perceived value of our products.

However, our competitors may implement more effective marketing campaigns, adopt more aggressive pricing policies, make more attractive offers to potential employees, distribution partners and manufacturers, or respond more quickly to changes in consumer preferences than us.

As a result, we may not be able to compete successfully in the future, and increased competition may result in price reductions, reduced gross margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand the development and marketing of our products, which could adversely impact our financial results.

Customer concentration and other trends in customer behavior may lead to a reduction in or loss of sales.

11 unchanged sentences

● Since we transact primarily in United States dollars, our international customers could purchase from competitors who will transact business in their local currency.

● Certain of our major wholesale customers have experienced a significant downturn or disruption in their business, including the impact of COVID-19.

● Certain of our major wholesale customers have experienced a significant downturn or disruption in their business.

If our customers continue to experience significant downturns or disruptions in their business, or file for bankruptcy, they may reduce their purchases of our products.

● Retailers are directly sourcing more of their products directly from international manufacturers and reducing their reliance on wholesalers, which could have a material adverse effect on our business and results of operations.

We operate in a highly competitive industry.

Competition is intense in the footwear industry.

There has also been consolidation of competitors in the industry, resulting in certain competitors that are larger and have greater financial, marketing and technological resources than we do.

addition, a move toward vertical integration by our competitors could create additional competitive pressures that may decrease our market share.

Low barriers to entry into this industry further intensify competition by allowing new companies to easily enter the markets in which we compete.

Some of our suppliers further compound these competitive pressures by allowing consumers to purchase their products directly through supplier-maintained e-commerce sites and retail stores.

The Internet facilitates price transparency and comparison shopping, which increases the level of competition we face and puts competitive pressure on us to keep our prices low.

We remain competitive by increasing awareness of our brands, improving the efficiency of our supply chain and enhancing the style, comfort, fashion and perceived value of our products.

Our quarterly sales and earnings may fluctuate, which may result in volatility in, or a decline in, our stock price.

Our quarterly sales and earnings can vary due to a number of factors, many of which are beyond our control, including the following:

● The COVID-19 pandemic has impacted the global economy.

Sales and earnings in 2020 were adversely impacted by the pandemic and may continue to be impacted.

● The pandemic has impacted the global economy.

Sales and earnings may continue to be impacted, particularly as a result of the ongoing supply chain disruptions.

● Our Famous Footwear retail business is seasonally weighted to the back-to-school season, which primarily falls in our third fiscal quarter.

1 unchanged sentence

● In our wholesale business, sales of footwear are dependent on orders from our major customers, and they may change delivery schedules, change the mix of products they order or cancel orders without penalty.

Our in-transit inventory in 2021 rose significantly as a result of the supply chain disruptions.

Depending on the timing of receipt of this inventory, certain customers may request price concessions or choose to cancel their orders.

● Our wholesale customers have been moving toward lower initial orders and more replenishment orders, which may result in shifts of sales between quarters.

3 unchanged sentences

Any shortfall in sales or earnings from the levels expected by investors could cause a decrease in the trading price of our common stock.

Certain branded suppliers are becoming more selective.

The loss of one or more of our major branded suppliers may adversely impact our business, results of operations, financial condition and cash flows.

Our Famous Footwear segment purchases a substantial portion of its footwear products from major branded suppliers.

Products purchased from three key third-party suppliers (Nike, Skechers and adidas) represented approximately 26% of consolidated net sales.

As is common in the industry, we do not have any long-term contracts with our suppliers.

In addition, the success of our financial performance is dependent on the ability of our Famous Footwear segment to obtain products from our suppliers on a timely basis and on acceptable terms.

While we believe we have positive working

relationships with our current suppliers, the loss of any of our major suppliers or product developed exclusively for our Famous Footwear stores could have a material adverse effect on our business, financial condition and results of operations.

In addition, negative trends in global economic conditions, including the impact of political tensions and military action in Eastern Europe and Eastern Asia and the impact of COVID-19 in Southeast Asia, may adversely impact our suppliers.

If these third parties do not perform their obligations or are unable to provide us with the materials and services we need at prices and terms that are acceptable to us, our ability to meet our consumers’ demand could be adversely affected.

Foreign currency fluctuations may result in higher costs and decreased gross profits.

1 unchanged sentence

Currency exchange rate fluctuations may also adversely impact third parties who manufacture the Company’s products by making their purchases of raw materials or other production costs more expensive and more difficult to finance, resulting in higher prices and lower margins for the Company, its distributors and licensees.

A long-term decline in our stock price may result in impairment charges.

As a result of the impact of the COVID-19 pandemic on the economy and volatility in global stock prices, including the Company’s stock price, we recognized material impairment charges during 2020.

If there are additional periods of lower stock market valuations or an adverse impact to cash flow projections as a result of the impact of COVID-19 or other economic conditions, we may be required to perform additional impairment tests for intangible assets and long-lived assets, which may result in additional material impairment charges.

OPERATIONAL RISKS

3 unchanged sentences

International sourcing is subject to numerous risks, including trade relations, work stoppages, transportation delays (including delays at international and domestic ports) and costs (including customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions or other trade restrictions), domestic and international political instability, foreign currency fluctuations, variable economic conditions, expropriation, nationalization, natural disasters, terrorist acts and military conflict, changes in governmental regulations (including the U.S.

Foreign Corrupt Practices Act) and geo-political events.

Foreign Corrupt Practices Act) and geo-political events, such as the current Russia-Ukraine crisis.

We have recently experienced supply chain disruptions and port congestion, leading to delayed receipt of inventory in 2021.

If supply chain disruptions continue, our financial results could be adversely impacted.

In addition, the imposition of tariffs or other costs on imported products may result in an increase in

product prices, which may in turn adversely impact our gross margins if we are unable to mitigate the impact of the costs.

There is also uncertainty surrounding the impact of any changes to trade legislation as a result of the shift in the U.S.

presidential administration and control of the U.S.

In addition, the imposition of tariffs or other costs on imported products may result in an increase in product prices, which may in turn adversely impact our gross margins if we are unable to mitigate the impact of the costs.

At the same time, potential changes in manufacturing preferences, including, but not limited to the following, pose additional risk and uncertainty:

● Manufacturing capacity may shift from footwear to other industries with manufacturing margins that are perceived to be higher.

● Some footwear manufacturers may face labor shortages as workers seek better wages and working conditions in other industries and locations.

● Some footwear manufacturers may face labor shortages as workers seek better wages and working conditions in other industries or locations.

As a result of these risks, there can be no assurance that we will not experience reductions in available production capacity, increases in our product costs, late deliveries or terminations of our supplier relationships.

13 unchanged sentences

We routinely possess sensitive consumer and associate information and periodically provide it to third parties for analysis, benefit distribution or compliance purposes.

Additionally, as a result of the COVID-19 pandemic, a large portion of our Corporate employees are working remotely, which may result in heightened cybersecurity risk.

Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic.

Additionally, as a result of the pandemic, a large portion of our Corporate employees have shifted to a hybrid work schedule and are working remotely, which may result in heightened cybersecurity risk.

Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts.

While we believe we have taken reasonable and appropriate steps to protect that information, hackers and data thieves operate sophisticated, large-scale attacks that could breach our information systems, despite ongoing security measures.

10 unchanged sentences

The COVID-19 pandemic resulted in lower sales during 2020, and lower sales projections.

The full impact of the pandemic and its impact on consumer sentiment is difficult to estimate.

The future impact of the pandemic, including the emergence of any new variants, and its impact on consumer sentiment is difficult to estimate.

A disruption in the effective functioning of our distribution centers could adversely affect our ability to deliver inventory on a timely basis.

2 unchanged sentences

We may be unable to successfully manage, negotiate or renew our distribution center leases, or we may experience complications with respect to our distribution centers, such as substantial damage to, or destruction of, such facilities due to natural disasters or ineffective information technology systems.

In such an event, our other distribution centers may not be able to support the resulting additional distribution demands and we may be unable to locate alternative persons or entities capable of fulfilling our distribution needs, resulting in an adverse effect on our ability to deliver inventory on a timely basis.

The COVID-19 pandemic has also adversely impacted the effective operation of our distribution centers as a result of temporary retail store closures, labor shortages as a result of government mandates to stop the spread of the virus, and disruptions to the supply chain.

distribution needs, resulting in an adverse effect on our ability to deliver inventory on a timely basis.

The effective operation of our distribution centers may also be impacted by wage inflation, labor shortages and disruptions to the supply chain.

Our success depends on our ability to retain senior management and recruit and retain other key associates.

3 unchanged sentences

The loss of the services of any member of our senior management or key associates, the inability to attract and retain other qualified personnel or the inability to effectively transition positions could adversely affect the sales, design and production of our products as well as the implementation of our strategic initiatives.

If we are unable to maintain working relationships with our major branded suppliers, our business, results of operations, financial condition and cash flows may be adversely impacted.

Our Famous Footwear segment purchases a substantial portion of its footwear products from major branded suppliers.

Products purchased from three key third-party suppliers (Nike, Skechers and adidas) represented approximately 25% of consolidated net sales.

As is common in the industry, we do not have any long-term contracts with our suppliers.

In addition, the success of our financial performance is dependent on the ability of our Famous Footwear segment to obtain products from our suppliers on a timely basis and on acceptable terms.

While we believe our relationships with our current suppliers are good, the loss of any of our major suppliers or product developed exclusively for our Famous Footwear stores could have a material adverse effect on our business, financial condition and results of operations.

In addition, negative trends in global economic conditions may adversely impact our suppliers.

If these third parties do not perform their

obligations or are unable to provide us with the materials and services we need at prices and terms that are acceptable to us, our ability to meet our consumers’ demand could be adversely affected.

Our retail business depends on our ability to secure affordable and desirable leased locations without creating a competitive concentration of stores.

15 unchanged sentences

If we are unable to effectively manage social media, our reputation and consumer’s perception of our brands may be negatively impacted.

Our ESG initiatives may result in increased scrutiny from stakeholders or regulators with respect to our ESG goals and objectives.

We may not be able to achieve our ESG goals within the timelines established, or at all.

Failure to successfully achieve our established goals may damage our reputation, or the reputation of our brands.

Our reputation may also be damaged if we do not act, or are perceived by our consumers to not act, responsibly with respect to our impact on the environment or other social or governance matters.

Damage to our brands and reputation could have a material adverse effect on our business, results of operations, financial position and cash flow.

6 unchanged sentences

Transitional challenges with acquisitions and divestitures could result in unexpected expenditures of time and resources.

As part of our business strategy, we periodically pursue acquisitions of other companies or businesses, such as our 2018 acquisitions of Blowfish Malibu and Vionic, as further discussed in Note 2 to the consolidated financial statements, as well as divestitures of our businesses, such as the exit of the vast majority of our Naturalizer retail locations.

As part of our business strategy, we periodically pursue acquisitions of other companies or businesses, as well as divestitures of our businesses, such as the exit of the vast majority of our Naturalizer retail locations in the first quarter of 2021.

Although we review the records of acquisition candidates, the review may not reveal all existing or potential problems.

8 unchanged sentences

Our financial results are significantly impacted by the effective tax rates of both our domestic and international operations.

Future changes in tax laws, including income tax changes proposed by the new presidential administration, combined with the current political environment created by a change of control in Congress, could materially impact our effective tax rate.

Our effective income tax rate could also be adversely affected by certain provisions of Tax Cuts and Jobs Act (the "Act"), which was enacted in December 2017, that directly affect international earnings, such as the global intangible low-taxed income tax ("GILTI") and base-erosion and anti-abuse tax provisions ("BEAT").

Future changes in tax laws could materially impact our effective tax rate.

Other factors, such as changes in the mix of earnings in countries with differing statutory tax rates, changes in permitted deductions, interpretations, policies and treaties and the outcome of income tax audits in various jurisdictions, may result in higher taxes, lower profitability and increased volatility in our financial results.

14 unchanged sentences

Our license agreements are generally for an initial term of two to four years, subject to renewal, and there can be no assurance that we will be able to renew these licenses.

Even our longer-term or renewable licenses are typically dependent upon our ability to market and sell the licensed products at specified levels, and the failure to meet such levels may result in the termination or non-renewal of such licenses.

such licenses.

Furthermore, many of our license agreements require minimum royalty payments, and if we are unable to generate sufficient sales and profitability to cover these minimum royalty requirements, we may be required to make additional payments to the licensors that could have a material adverse effect on our business and results of operations.

4 unchanged sentences

If our licensees are not able to meet annual sales and royalty goals, obtain financing, manage their supply chain, control quality and maintain positive relationships with their customers, our business, results of operations and financial position may be adversely affected.

While we would likely have the ability to terminate an underperforming

license, it may be difficult and costly to locate an acceptable substitute distributor or licensee, and we may experience a disruption in our sales and brand visibility.

While we would likely have the ability to terminate an underperforming license, it may be difficult and costly to locate an acceptable substitute distributor or licensee, and we may experience a disruption in our sales and brand visibility.

In addition, although many of our license agreements prohibit the licensees from entering into licensing arrangements with certain of our competitors, they are generally not prohibited from offering, under other brands, the types of products covered by their license agreements with us.

12 unchanged sentences

Our business, results of operations, financial condition and cash flows could be adversely affected by the failure of financial institutions to fulfill their commitments under our Credit Agreement.

The Fourth Amendment to our Fourth Amended and Restated Credit Agreement (the “Credit Agreement”), which matures on January 18, 2024, is provided by a syndicate of financial institutions, with each institution agreeing severally (and not jointly) to make revolving credit loans to us in an aggregate amount of up to $600.0 million in accordance with the terms of the Credit Agreement.

The Fifth Amendment to our Fourth Amended and Restated Credit Agreement (the “Credit Agreement”), which matures on October 5, 2026, is provided by a syndicate of financial institutions, with each institution agreeing severally (and not jointly) to make revolving credit loans to us in an aggregate amount of up to $500.0 million in accordance with the terms of the Credit Agreement.

In addition, the Credit Agreement provides for an increase at the Company’s option by up to $250.0 million.

As a result of the COVID-19 pandemic, many companies are relying on bank funding for working capital needs.

If one or more of the financial institutions participating in the Credit Agreement were to default on its obligation to fund its commitment, the portion of the facility provided by such defaulting financial institution may not be available to us.

If we are unable to maintain our credit rating, our ability to access capital and interest rates may be negatively impacted.

The credit rating agencies periodically review our capital structure and the quality and stability of our earnings.

Any negative ratings actions, such as the downgrades of our credit rating by Moody’s and S&P in 2020, could constrain the capital available to us or our industry and could limit our access to long-term funding or cause such access to be available at a higher borrowing cost for our operations.

We are dependent upon our ability to access capital at rates and on terms we determine to be attractive.

If our ability to access capital becomes constrained, our interest expense will likely increase, which could adversely affect our financial condition and results of operations.

In addition, as of January 29, 2022, total borrowing availability under the Credit Agreement was $155.2 million.

3 unchanged sentences

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