What changed in this filing

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Item 1A. Risk Factors

2020-09-04 compared with 2020-06-19 · 53 added, 18 removed, 13 unchanged (85% of the section changed)

2 unchanged sentences

The COVID-19 outbreak has had, and may continue to have, a material adverse impact on our business, operations, liquidity, financial condition, and results of operations.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and governmental authorities around the world have implemented measures to reduce the spread of COVID-19.

These measures have adversely affected workforces, customers, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn in many of our markets.

Although our e-commerce businesses continues to be available to customers, we temporarily closed all of our stores in the U.S.

and Canada, effective as of March 18, 2020, with our fulfillment center and stores to be utilized for the fulfillment of online orders to be shipped to customers or made available for curbside pickup.

During this unprecedented period of uncertainty, we have made and may continue to make adjustments to our operational plans, inventory disciplines, liquidity management, and reductions to our expense and capital expenditure plans.

Such measures include, but are not limited to, implementing temporary leaves of absence for a significant number of our employees without direct pay and pay reductions for nearly all employees not placed on temporary leave.

The impact of the COVID-19 outbreak, including the temporary closure of all of our stores, has had and will continue to have a material adverse effect on our business, liquidity, financial condition, and results of operations.

Additionally, a more promotional retail environment or our ability to move existing inventory, may cause us to lower our prices, sell existing inventory at larger discounts than in the past, or write-down the value of inventory, and increase the costs and expenses of updating and replacing inventory, and we may continue to see pressure on our sales and our margins.

The COVID-19 pandemic remains a rapidly evolving situation.

The continuation of the outbreak or a new surge in cases may further prolong store closures, require additional adjustments to store operations, and cause changes in customer behaviors, including a potential reduction in consumer spending.

We are unable to accurately predict the severity of impact that COVID-19 will have on our operations going forward due to uncertainties that will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unknowable duration of the COVID-19 outbreak and the impact of governmental regulations that might be imposed in response to COVID-19, which could, among other things, require that we close our distribution and fulfillment centers or otherwise make it difficult or impossible to operate our e-commerce

business, regarding the length of time that COVID-19 disruptions will continue.

Numerous state and local jurisdictions have imposed, and others in the future may impose, shelter-in-place orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19.

Such orders or restrictions, have resulted in temporary store closures, work stoppages, slowdowns and delays, travel restrictions and cancellation of events, among other effects, thereby negatively impacting our sales and operations.

In addition, we expect to be impacted by the deterioration in the economic conditions in North America, which potentially could have an impact on discretionary consumer spending.

To the extent that our target customer demographic is disproportionately impacted by unemployment or otherwise as a result of the COVID-19 outbreak, our business may be further adversely affected.

To the extent the COVID-19 outbreak adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the "Risk Factors" section of our 2019 Form 10-K , including risks relating to change in consumer preferences, our ability to generate sufficient cash flows, our ability to comply with the covenants contained in the agreements that govern our indebtedness, availability of adequate capital and disruptions to our supply chain and in the manufacture, shipment, and sale of our products.

COVID-19 may impact our international operations, including, but not limited to, our foreign sources of merchandise.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

On March 18, 2020, to help control the spread of the virus and protect the health and safety of our customers, employees, and the communities we serve, we temporarily closed all of our stores in the U.S.

In addition, we took several actions in late March 2020 to reduce costs and operations to levels that were more commensurate with then-current sales, including furloughs and pay reductions.

However, as this continues to be an unprecedented period of uncertainty, we have made and may continue to make adjustments to our operational plans, inventory controls, liquidity management, and reductions to our expense and capital expenditure plans.

With the easing of stay-at-home orders and other state-imposed restrictions on non-essential businesses, during the second quarter and into the third quarter of fiscal 2020, we have re-opened the majority of our stores, discontinued the furlough program, and restored pay for our associates that had taken pay reductions.

In July 2020, we implemented an internal reorganization and reduction of our workforce, resulting in the elimination of over 1,000 associate positions, including approximately 220 vacant positions that will not be filled.

Given the continuation of overall depressed consumer sentiment, customer behavior has been and may continue to be slow to return to pre-COVID-19 patterns and levels, if at all.

We have continued to serve our customers through our e-commerce businesses during the period that our stores were closed and beyond, but store closures resulted in a sharp decline in our net sales and cash flows during the first half of fiscal 2020.

Although the majority of our stores are now open, we are experiencing, and may continue to experience, significantly reduced customer traffic and net sales.

Our retailer customers in the Brand Portfolio Segment are having similar experiences.

The COVID-19 pandemic remains challenging.

The continuation of the outbreak or a new surge in cases may cause new and prolonged periods of store closures, further adjustments to store operations, and changes in customer behaviors and preferences, which may necessitate further shifts in our business model, and potential reductions in consumer spending.

As such, the ultimate impacts of the COVID-19 outbreak to our businesses remain highly uncertain and we may have additional write-downs of inventories, accounts receivables, long-lived assets, intangibles, and goodwill and an inability to realize deferred tax assets.

Measures intended to prevent the spread of COVID-19 may negatively impact our operations.

In response to the COVID-19 outbreak and the government mandates implemented to control its spread, most of our corporate office associates are working remotely.

If our employees are unable to work effectively as a result of the COVID-19 outbreak, including because of illness, quarantines, office closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted.

Further, remote work arrangements may increase the risk of cybersecurity incidents, data breaches or cyber-attacks, which could have a material adverse effect on our business and results of operations, due to, among other things, the loss of proprietary data, interruptions or delays in the operation of our business, damage to our reputation and any government-imposed penalty.

COVID-19 may negatively impact our international operations, including, but not limited to, our foreign sources of merchandise.

We have international operations in China, Canada, and Brazil.

8 unchanged sentences

Our major retailer customers have experienced and may continue to experience a significant downturn in their businesses as a result of the COVID-19 outbreak and, in turn, these customers have and may continue to reduce their purchases from us, which has had and may continue to have a material adverse effect on the Brand Portfolio segment.

We may be unable to anticipate and respond to fashion trends, consumer preferences and changing customer expectations, which could have a material adverse effect on our business.

With our customers staying home more as a result of COVID-19, we believe that there will continue to be a clear shift in consumer behavior and corresponding preferences to increased demand for athleisure and casual products and away from dress and seasonal categories.

This requires us to anticipate and respond to numerous and fluctuating variables in fashion trends and other conditions in the markets in which our customers are situated.

A variety of factors will affect our ability to maintain the proper mix of products, including:

local economic conditions impacting customers' discretionary spending;

unanticipated fashion trends;

our ability to provide timely access to popular brands at attractive prices;

our success in distributing merchandise to our stores and our wholesale retailer customers in an efficient manner;

and changes in weather patterns, which, in turn, may affect consumer preferences.

If we are unable to anticipate trends and fulfill the merchandise needs of our customers, we may experience decreases in our net sales and may be forced to increase markdowns in relation to slow-moving merchandise, either of which could have a material adverse effect on our business.

Being an omni-channel retailer is a business necessity to meet customer experience expectations.

In the event that our omni-channel strategy does not meet customer expectations or is not differentiated from our competitors, it may have a material adverse effect on our business.

We rely on our strong relationships with vendors to purchase products.

If these relationships were to be impaired, we may be unable to obtain a sufficient assortment of merchandise at attractive prices or respond promptly to changing fashion trends, either of which could have a material adverse effect on our business and financial performance.

Our success depends, to a significant extent, on the willingness and ability of our vendors to supply us with merchandise that meets our changing customer expectations, especially as we concentrate our receipts to fewer branded vendors.

If we fail to maintain strong relationships with these vendors or if they fail to ensure the quality of merchandise they supply us, our ability to provide our customers with merchandise they want at favorable prices may be limited, which could have a negative impact on our business.

Decisions by vendors to not sell to us or to limit the availability of their products to us could have a negative impact on our business.

In addition, our inability to stock our sales channels with desired merchandise at attractive prices could result in lower net sales and decreased customer interest in our sales channels, which could have a material adverse effect on our business.

Further, if our merchandise costs increase due to increases incurred by our vendors in raw materials, energy, labor, or duties and taxes on imports, or other reasons, our ability to respond or the effect of our response could adversely affect our net sales or gross profit.

During fiscal 2019, three key third-party vendors together supplied approximately 21% of our retail merchandise.

For fiscal 2020, we expect these and other high-volume vendors to become more concentrated for our total purchases.

The loss of, or a reduction in, the amount and quality of merchandise supplied by any one of these vendors could have an adverse effect on our business.

In addition, any negative brand image, wide-spread product defects, or negative publicity related to these key vendors, or other vendors, could have a material adverse effect on our reputation and on our business.

We rely on consumer discretionary spending, which may be adversely affected by economic downturns and other macroeconomic conditions or trends and/or exacerbated as a result of the COVID-19 pandemic.

Our business and operating results are subject to global economic conditions and their impact on consumer discretionary spending.

Many factors that may negatively influence consumer spending are becoming increasingly present as a result of COVID-19 and political instability, including high levels of unemployment, higher consumer debt levels, reductions in net worth, declines in asset values and related market uncertainty, fluctuating interest rates and credit availability, fluctuating fuel and other energy costs, general uncertainty regarding the overall future political and economic environment, and recent large-scale social unrest across much of the U.S.

Consumer purchases of discretionary items, including our products, generally decline during periods of economic uncertainty, when disposable income is reduced or when there is a reduction in consumer confidence.

Additionally, any of these adverse economic, political or social conditions may have the effect of directly or indirectly impacting our operating results in a negative manner.

Moreover, we are unable to predict the severity of macroeconomic uncertainty, whether or when such circumstances may improve or worsen, or the full impact such circumstances could have on our business.

Stein Mart filing for relief under Chapter 11 of the United States Bankruptcy Code could have a material adverse effect on our business and financial performance.

On August 12, 2020 , Stein Mart, one of our ABG retail partners, filed for relief under Chapter 11 of the United States Bankruptcy Code and announced its plan to liquidate inventory.

The ultimate outcome of the filing and liquidation sale is subject to the oversight and approval of the bankruptcy court.

We are monitoring the status of the filing and are taking appropriate actions to maximize the recovery value of the inventory we own at Stein Mart locations.

As of August 1, 2020, inventory we owned at Stein Mart locations was $ 15.2 million at cost and we had a receivable balance due from Stein Marts of $ 2.1 million.

Although we do not expect to incur material losses as a result of Stein Mart's actions, there can be no assurances that we will successfully recover the full value of these assets.

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-Q

Item 1A. Risk Factors