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Item 1A. Risk Factors

2022-03-30 compared with 2021-03-18 · 40 added, 20 removed, 363 unchanged (14% of the section changed)

You should consider carefully the following risks and uncertainties when reading this Annual Report.

If any of the following risks actually occurs, our business, financial condition and results of operations could be materially and adversely affected.

You should carefully consider the following risks and uncertainties when reading this Annual Report.

If any of the following risks actually occur, our business, financial condition and/or results of operations could be materially and adversely affected.

In that event, the trading price of our common stock could decline.

Although we believe that we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our performance or financial condition.

Although we believe that we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known to us or that we currently deem to be immaterial that may materially adversely affect our business, financial condition and/or results of operations.

Risks Relating to Our Business and Industry

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The COVID-19 global pandemic that began in the first quarter of 2020 has both ebbed and surged multiple times since in many parts of the United States, with a resultant cycle of the imposition, lapsing and re-imposition of federal, state and local restrictions on our ability to operate.

These restrictions included restrictions on business operations, freedom of travel, border closings, shelter in place orders, and quarantines.

These restrictions included restrictions on business operations, freedom of travel, border closings, shelter in place orders, quarantines and a mandate related to the vaccination status and testing of employees.

The pandemic and the related preventative and protective actions have adversely impacted the global economy, resulted in unprecedented levels of unemployment, reduced consumer confidence and discretionary consumer spending, disrupted global supply chains, and created significant volatility in financial markets.

The pandemic and the related actions have materially adversely impacted our business, results of operations, financial condition and cash flows, including through the temporary store closures that began in March 2020, as well as reductions in operating hours and decreases in store traffic which continued through the balance of fiscal 2020.

Further resurgences in COVID-19 cases, including from variants, could cause additional restrictions, including temporarily closing all or some of our stores again.

An outbreak at one of our stores, even if we follow appropriate precautionary measures, could negatively impact our employees, customers, and brand.

As a result of the temporary store closures due to the COVID-19 pandemic, we withheld store rent for the closure period.

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A successful assertion by the landlords of a breach of a significant number of our leases could have a material adverse impact on our business, financial condition, profitability and cash flows.

If the pandemic were to worsen or continue for a longer period than currently anticipated, business and consumer responses to the pandemic could adversely affect, among other aspects of our business:

If the pandemic were to worsen or continue, including from variants of COVID-19, for a longer period than currently anticipated, business and consumer responses to the pandemic could adversely affect, among other aspects of our business:

• our ability to maintain and increase sales and margins and to execute effectively on our business plans;

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• our ability to restructure our lease obligations.

In November 2021, the U.S.

Occupational Safety and Health Administration ("OSHA") issued an Emergency Temporary Standard ("ETS") requiring that certain large employers enforce a mandatory COVID-19 vaccination policy or adopt a policy requiring employees to either receive a COVID-19 vaccination or undergo regular COVID-19 testing.

Although the Supreme Court ultimately enjoined enforcement of this particular ETS, implementing similar standards in the future across the entire country, particularly testing protocols for unvaccinated employees, could be costly and disruptive to our store operations.

Additionally, enforcing such standards could adversely impact our workforce and ability to attract and retain employees.

Any of the negative impacts of the pandemic, including those described above, alone or in combination with others, may exacerbate many of the risk factors discussed otherwise herein.

The full extent to which the pandemic will negatively affect our business, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities businesses and customers in response to the pandemic.

The full extent to which the pandemic will negatively affect our business, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including the severity of COVID-19 and its variants, the scope and duration of the pandemic and actions taken by governmental authorities businesses and customers in response to the pandemic.

We may not be able to successfully implement our growth strategy on a timely basis or at all, which could harm our growth and results of operations.

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As a result of the COVID-19 pandemic, our business operations and results of operations, including our net sales, earnings and cash flows, were materially impacted in fiscal 2020 due to, in part, decreased customer traffic in stores, including, without limitation, on account of limitations on the number of persons permitted in stores at one time by certain local and state regulations.

If the pandemic were to worsen again, our business operations and results of operations may again be materially impacted by a number of factors including a decrease in customer traffic.

If the pandemic were to worsen again, and, in particular if regulatory restrictions were reintroduced as a result, our business operations and results of operations may again be materially impacted by a number of factors including a decrease in customer traffic.

Our new store growth is dependent upon our ability to successfully expand our distribution network capacity, and failure to achieve or sustain these plans could affect our performance adversely.

We maintain distribution centers in Pedricktown, New Jersey, Olive Branch, Mississippi, Forsyth, Georgia, Conroe, Texas and Cincinnati, Ohio.

We maintain distribution centers in Pedricktown, New Jersey, Olive Branch, Mississippi, Forsyth, Georgia, Conroe, Texas, Buckeye, Arizona and Cincinnati, Ohio.

We continuously assess ways to maximize the productivity and efficiency of our existing distribution facilities and evaluate opportunities for additional distribution centers.

In August 2019, we acquired land in Conroe, Texas, to build an approximately 860,000 square foot distribution center, which we began operating in July 2020.

In July 2020, we acquired land in Buckeye, Arizona, to build an approximately 860,000 square foot distribution center, which we expect to occupy in the second half of 2021.

In addition, we are planning to lease or build new distribution centers over the next few years to support our growth.

In July 2020, we acquired land in Buckeye, Arizona, to build an approximately 860,000 square foot distribution center, which we began operating in August 2021.

In March 2021, we acquired land in Indianapolis, Indiana, to build an approximately 1,030,000 square foot distribution center, which we expect to occupy in the first half of fiscal 2022.

As a result of the significant expansion of our network of distribution facilities over the last several years, including the planned opening in the first half of fiscal 2022 of our Indianapolis, Indiana distribution center, we expect to cease operations at our distribution centers in Olive Branch, Mississippi and Cincinnati, Ohio in the first half of fiscal 2022, and expect the costs incurred to be immaterial to our consolidated statements of operations.

Delays in opening the planned new distribution centers could adversely affect our future operations by slowing store growth, which could in turn reduce sales growth.

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This fixed cost structure may adversely affect profitability if sales volumes decline for an extended period of time and could have material adverse effects on our financial condition, results of operations or cash flow.

Furthermore, our distribution centers in Forsyth, Georgia, Conroe, Texas and Buckeye, Arizona subject us to the risks of owning real property, which include, but are not limited to:

Furthermore, our distribution centers in Forsyth, Georgia, Conroe, Texas, Buckeye, Arizona and Indianapolis, Indiana subject us to the risks of owning real property, which include, but are not limited to:

• the possibility of environmental contamination and the costs associated with remediating any environmental problems;

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Our use of outside delivery services for shipments is subject to risks outside of our control and any disruption, unanticipated expense or operational failure related to this process could affect store operations negatively.

In fiscal 2020 the COVID-19 pandemic disrupted our supply chain.

Although we were able to mitigate the impact to our business from such disruptions there can be no guaranty that we would be able to mitigate future COVID-19 related disruptions.

Since early 2020, the COVID-19 pandemic disrupted our supply chain.

Although we were able to mitigate the impact to our business from such disruptions, there can be no guarantee that we would be able to mitigate future COVID-19 related disruptions.

For example, unexpected delivery delays or increases in transportation costs (including through increased fuel costs or a decrease in transportation capacity for overseas shipments or resulting from labor shortages or work stoppages) could significantly decrease our ability to generate sales and earn profits.

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If weather conditions are not favorable during these periods, our operating results and cash flow from operations could be adversely affected.

A significant disruption in our information technology systems and our inability to adequately maintain and update those systems could adversely affect our operations and negatively affect our customers.

We rely extensively on our information technology systems (which includes certain systems currently outsourced to, or using cloud-based services provided by, third parties) throughout our business.

We also rely on continued and unimpeded access to the internet to use our information technology systems.

Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses, malicious attacks, security breaches, catastrophic events, and implementation errors.

If our systems are damaged, disrupted or fail to function properly or reliably, we may incur substantial repair or replacement costs, experience data loss or theft and impediments to our ability to manage inventories or process customer transactions, and encounter lost customer confidence, which could require additional promotional activities to attract customers and otherwise adversely affect our results of operations.

We continually invest to maintain and update our information technology systems.

Implementing significant system changes increases the risk of system disruption.

The potential problems and interruptions associated with implementing technology initiatives, as well as providing training and support for those initiatives, could disrupt or reduce our operational efficiency, and could negatively impact customer experience and customer confidence.

If we are unable to secure our customers’ confidential or credit card information, or other private data relating to our employees or our Company, we could be subject to negative publicity, costly government enforcement actions or private litigation, which could damage our business reputation and adversely affect our financial results.

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Our business requires that we lease substantial amounts of space and there can be no assurance that we will be able to continue to lease space on terms as favorable as the leases negotiated in the past.

Currently, we lease all of our store locations, as well as our corporate headquarters and distribution facilities in Pedricktown, New Jersey, Olive Branch, Mississippi and Cincinnati, Ohio (and own our distribution centers in Forsyth, Georgia, Conroe, Texas and land in Buckeye, Arizona, where we expect to build a distribution center).

Currently, we lease all of our store locations, as well as our corporate headquarters and distribution facilities in Pedricktown, New Jersey, Olive Branch, Mississippi and Cincinnati, Ohio (and own our distribution centers in Forsyth, Georgia, Conroe, Texas, Buckeye, Arizona and land in Indianapolis, Indiana, where we are building a distribution center).

Our stores are leased from third parties, with typical initial lease terms of ten years.

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work stoppages;

unforeseen construction, scheduling, engineering, environmental or geological problems;

weather interference;

unforeseen construction, scheduling, engineering, environmental or geological problems, weather interference;

fires or other casualty losses;

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Our inability to upgrade or expand, our technology systems as a result of external factors, staffing shortages or difficulties in updating our existing technology or developing or implementing new technology could have a material adverse effect on our business or results of operations.

We are continuing to expand, upgrade and develop our information technology capabilities, including, most recently, our core-enterprise resource planning system (or "ERP") which we implemented through Oracle software in fiscal 2020, and the re-launch of our e-commerce website on the Hollar platform in fiscal 2020.

In addition, in fiscal 2021, we are planning to adopt a new enterprise wide human capital management system.

We are continuing to expand, upgrade and develop our information technology capabilities, including, most recently, our core-enterprise resource planning system (or "ERP") which we implemented through Oracle software in fiscal 2020, the re-launch of our e-commerce website on the Hollar platform in fiscal 2020, and the implementation of a new enterprise wide human capital management system, Workday, in 2021.

If we are unable to successfully continue upgrading or expanding our technological capabilities to support our growth we may not be able to take advantage of market opportunities, manage our costs and transactional data effectively, satisfy customer requirements, execute our business plan or respond to competitive pressures.

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The changes included in the TCJA are broad and complex.

The final transition impacts of the TCJA may differ from the estimates provided elsewhere in this report, possibly materially, due to, among other things, changes in interpretations of the TCJA, any legislative action to address questions that arise because of the TCJA, any changes in accounting standards for income taxes or related interpretations in response to the TCJA, or any updates or changes to estimates we have utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates.

As these and other tax laws and related regulations change, our financial results could be materially impacted.

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This type of litigation, even if it does not result in liability for us, could result in substantial costs to us and divert management's attention and resources.

Our business and reputation may be adversely affected by environmental, social and governance matters.

Investor and regulatory focus is intensifying with respect to certain environmental, social and governance ("ESG") matters.

These matters include, among others, (i) efforts and mitigation of the impact of climate change, (ii) human rights matters, (iii) ethics and compliance with law, (iv) diversity, equity and inclusion, and (v) the role of the Company's board of directors in supervising various sustainability issues.

Additionally, in the retail industry, the materials used in the products we sell as well as where we source our products is of particular importance.

In addition, investment in funds that specialize in companies that perform well in ESG assessments are increasingly popular, and major institutional investors and advisors have publicly emphasized the importance of ESG measures to their investment decisions and recommendations.

Investors who are focused on ESG matters may seek enhanced disclosures or require implementation of policies that may be adverse to our business, and there can be no assurances that shareholders will not advocate, via proxy contests, media campaigns or other public or private means, for us to take ESG focused actions on an accelerated timeline.

Additionally, there can be no certainty that we will successfully navigate or manage ESG issues or that we will successfully meet investors or others expectations.

Any failure or perceived failure by us in this regard could have a material adverse effect on our reputation with governments, customers, employees, other third parties and the communities and industries in which we operate, as well as, on our business, share price, financial condition, access to capital or results of operations.

Your percentage ownership in us may be diluted by future equity issuances, which could reduce your influence over matters on which shareholders vote.

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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