What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2025-04-10 compared with 2024-04-11 · 146 added, 126 removed, 557 unchanged (33% of the section changed)

4 unchanged sentences

Additional risks and uncertainties not presently known to us, or that we currently believe are not material, also may become important factors that affect us and impair our business operations.

The occurrence of any of the events or developments discussed in the risk factors below could have a material and adverse impact on our business, results of operations, financial condition and cash flows, and in such case, our future prospects would likely be materially and adversely affected.

and adversely affected.

If any of such events or developments were to happen, the trading price of our common stock could decline.

17 unchanged sentences

• our ability to successfully adapt to consumer shopping preferences;

• unfavorable changes to government regulation of the Internet and ecommerce;

• unfavorable changes to government regulation, including of the Internet and ecommerce;

• failure to meet our publicly announced guidance;

3 unchanged sentences

Our historical growth rates may not be sustainable or indicative of future growth.

To manage our growth effectively, we must continue to implement our operational plans and strategies, acquire new and retain existing customers, increase our showroom base, optimize our omni-channel operations, and improve and expand our infrastructure of people and information systems.

information systems.

The success of our growth strategy depends, in part, on our ability to keep existing customers engaged and attract new customers to our brand.

6 unchanged sentences

Our goal is to offer our customers seamless access to our products across our channels, and our success depends on our ability to anticipate and implement innovations in sales and marketing strategies to appeal to existing and potential customers who increasingly rely on multiple channels, such as ecommerce, to meet their shopping needs.

Failure to enhance our technology and marketing

efforts to align with our customers’ developing shopping preferences could significantly impair our ability to meet our strategic business and financial goals.

Failure to enhance our technology and marketing efforts to align with our customers’ developing shopping preferences could significantly impair our ability to meet our strategic business and financial goals.

Additionally, the growth of our business places significant demands on our operations, as well as our management and other employees.

13 unchanged sentences

Consumer purchases of discretionary items, including our products, generally decline during recessionary periods and other times when disposable income is lower.

Factors impacting discretionary consumer spending include general economic conditions, inflation, reduction in wages and discretionary income, levels of unemployment, consumer debt, reductions in net worth based on severe market declines, residential real estate and mortgage markets, taxation, tariffs, volatility of fuel and energy prices, fluctuations in interest rates or currency exchange rates, consumer confidence, closure or restricted operating conditions for businesses, political and economic uncertainty, inclement weather, natural disasters, health epidemics or pandemics and other macroeconomic factors, including geopolitical conditions and regional conflicts.

Factors impacting discretionary consumer spending include general economic conditions, inflation, reduction in wages and discretionary income, levels of unemployment, consumer debt, reductions in net worth based on severe market declines, residential real estate and mortgage markets, taxation, regulations and new or increased tariffs, including retaliatory tariffs, export controls, volatility of fuel and energy prices, fluctuations in interest rates or currency exchange rates, consumer confidence, closure or restricted operating conditions for businesses, political and economic uncertainty, inclement weather, natural disasters, health epidemics or pandemics and other macroeconomic factors, including geopolitical conditions and regional conflicts.

Deterioration in economic conditions, increasing inflation or increasing unemployment levels may reduce the level of discretionary consumer spending and inhibit consumers’ use of credit, which may adversely affect our sales.

1 unchanged sentence

A downturn in the economic environment can also lead to financial instability, increased credit and collectability risk on our receivables, the failure of important partners, including suppliers, manufacturers, logistics providers, and other financial institutions.

It is difficult to predict when or for how long any of these conditions could affect our business and a prolonged economic downturn could have a material adverse effect on our business, financial condition, operating results and prospects.

difficult to predict when or for how long any of these conditions could affect our business and a prolonged economic downturn could have a material adverse effect on our business, financial condition, operating results and prospects.

Our inability to maintain our brand image, engage new and existing customers and gain market share could have a material adverse effect on our growth strategy and our business, financial condition, operating results and prospects.

6 unchanged sentences

If these third parties do not meet our or our customers' expectations, our brands may suffer irreparable damage.

There is also increased focus by governmental and non-governmental organizations, customers, and other stakeholders, on corporate social responsibility and sustainability matters.

Our reputation could be damaged if we do not (or are perceived not to) act responsibly with respect to any social or sustainability matters, which could negatively impact our business and results of operations.

Additionally, our reputation could be damaged if we do not (or are perceived not to) act responsibly with respect to any social or sustainability matters, which could negatively impact our business and results of operations.

While we believe our brand enjoys a loyal customer base, the success of our growth strategy depends, in part, on our ability to keep existing customers engaged and attract new customers to our brand.

We may not be able to maintain

and enhance our brand if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers' expectations.

We may not be able to maintain and enhance our brand if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers' expectations.

If we experience damage to our reputation or loss of consumer confidence, we may not be able to retain existing customers or acquire new customers, which could have a material adverse effect on our business, financial condition, operating results and prospects.

18 unchanged sentences

Further, some of our new customers originate from word of mouth or other non-paid referrals from existing customers.

If our efforts to satisfy our existing customers are not successful, we may not be able to acquire new customers or reactivate prior customers through these referrals, which may adversely affect how we continue to grow our business, or may require us to incur significantly higher marketing expenses in order to acquire new customers.

If our efforts to satisfy our existing customers are not successful, we may not be able to acquire new customers or reactivate

prior customers through these referrals, which may adversely affect how we continue to grow our business, or may require us to incur significantly higher marketing expenses in order to acquire new customers.

Our business is highly competitive.

19 unchanged sentences

If we are unable to attract, develop, motivate and retain well-qualified associates, our business could be harmed.

We believe our success has depended, and continues to depend, on the efforts and talents of Shawn Nelson, our founder, member of the Board of Directors and Chief Executive Officer, Mary Fox, our President and Chief Operating Officer, Keith Siegner, our Executive Vice President and Chief Financial Officer, and other members of our management team.

We believe our success has depended, and continues to depend, on the efforts and talents of Shawn Nelson, our founder, member of the Board of Directors and Chief Executive Officer, Mary Fox, our President and Chief Operating Officer, Keith Siegner, our Executive Vice President, Chief Financial Officer and Treasurer, and other members of our management team.

Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled associates.

13 unchanged sentences

Our own systems, which are customized versions of ecommerce, customer relationship management, payment processing, and inventory management software technologies deployed by numerous retailers and wholesalers in a variety of industries, must work seamlessly in order for information to flow correctly and update accurately across these systems.

We may experience periodic system interruptions from time to time.

We and our third-party service providers have and may in the future experience periodic system interruptions from time to time.

Any damage to our technology systems or website could cause interruptions to our operations that materially adversely affect our ability to meet customers' requirements, resulting in an adverse impact to our business, financial condition and results of operations.

10 unchanged sentences

Certain aspects of our business involve the receipt, storage and transmission of customers’ personal information and consumer preferences, as well as confidential information about our associates, our suppliers and our Company, some of which is entrusted to third-party service providers and vendors.

Despite the security measures we have in place, our facilities and systems, and those of third parties with which we do business, may be vulnerable to security breaches, acts of vandalism and theft, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events.

Despite the security measures we have in place, our facilities and systems, and those of third parties with which we do business, have been subject to and may in the future be vulnerable to security breaches, acts of vandalism and theft, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events.

In addition, the rapid evolution and increased adoption of artificial intelligence technologies may intensify these cybersecurity risks.

6 unchanged sentences

Moreover, a substantial portion of our business is dependent on a small number of suppliers.

Sacs, which represented approximately 7.4% of our revenues in fiscal 2024, 8.5% of our revenues in fiscal 2023, and 10.5% of our revenues in fiscal 2022, are currently manufactured by two manufacturers in Texas and North Carolina, which have previously experienced, and may continue to experience in the future, disruptions to its manufacturing operations.

Sactionals, which represented approximately 91.0% of our revenues in fiscal 2024, 89.8% of our revenues in fiscal 2023, and 87.6% of our revenues in fiscal 2022, are manufactured by suppliers in Malaysia, Mexico Vietnam, China, Indonesia, and Taiwan.

Sacs are currently manufactured by two manufacturers in Texas and North Carolina, which have previously experienced, and may continue to experience in the future, disruptions to its manufacturing operations.

Sactionals are manufactured by suppliers in Vietnam, China, Malaysia, Indonesia, Mexico, Taiwan, and India.

If our relationship with these suppliers or the suppliers' services are disrupted, terminated or otherwise negatively impacted, we could have difficulty or incur additional costs in replacing these suppliers.

3 unchanged sentences

Delays in deliveries and increases in freight charges or other costs of deliveries has and could continue to harm our sales, profitability, cash flows and financial condition.

Some of our third-party suppliers experienced a shortage of qualified labor at their manufacturing facilities in certain geographies, particularly within the United States, due in part to general macroeconomic factors.

Some of our third-party suppliers experienced a shortage of qualified labor at their manufacturing facilities in certain geographies, due in part to general macroeconomic factors.

A prolonged shortage of qualified labor may result in disruption, delays in deliveries or increased costs of deliveries, which could decrease our third-party suppliers' ability to effectively produce and meet our demands and efficiently operate their facilities.

16 unchanged sentences

Further, concerns regarding the safety and quality of products provided by our suppliers could cause our customers to avoid purchasing those products from us, or avoid purchasing products from us altogether, even if the basis for the concern is outside our control.

As such, any issue, or perceived issue, regarding the quality and safety of any items

we sell, regardless of the cause, could adversely affect our brand, reputation, operations and financial results.

We are also subject to risks of fraud from our suppliers.

As such, any issue, or perceived issue, regarding the quality and safety of any items we sell, regardless of the cause, could adversely affect our brand, reputation, operations and financial results.

subject to risks of fraud from our suppliers.

If our suppliers violate our agreements, applicable laws or regulations, or implement fraudulent practices regarding their products, it could harm our business, reputation and brands and our operating results may be negatively affected.

12 unchanged sentences

Many of our imported products are subject to existing duties, tariffs, anti-dumping duties and quotas that may limit the quantity or affect the price of some types of goods that we import into the United States.

In addition, substantial regulatory uncertainty exists regarding international trade and trade policy, both in the United States and abroad.

All of our goods imported from China are subject to additional tariffs.

In September 2018, the Office of the U.S.

Trade Representative began imposing a 10 percent ad valorem duty on a subset of products imported from China, inclusive of various furniture product categories.

In addition, effective May 10, 2019, the Office of the U.S.

Trade Representative began imposing an additional 15 percent ad valorem duty on a subset of products imported from China, inclusive of various furniture product categories.

We believe that nearly all of our products sourced from China are, and will continue to be, affected by the tariffs.

While we are continuing to assess these proposed tariffs on Chinese imports and have implemented strategies to mitigate the effects of the tariffs by engaging with suppliers in other countries, there can be no assurance that we will not experience disruption in our business.

Further, these changes to tariffs or other rules related to cross border trade, could materially increase our cost of goods sold with respect to products that we purchase from vendors who manufacture products in China, which could in turn require us to increase our prices and, in the event consumer demand declines as a result, negatively impact our financial performance.

In addition, recent events have resulted in substantial regulatory uncertainty regarding international trade and trade policy, both in the United States and abroad.

Government has also raised the possibility of other initiatives that may affect importation of goods including renegotiation of trade agreements with other countries and the introduction of new or increased import duties or tariffs with respect to products from a number of different countries.

has imposed or proposed the imposition of new tariffs on products imported into the U.S.

from a number of countries, including China, Mexico, Canada and other countries and could propose additional tariffs or increases to those already in place.

A substantial portion of our products sourced from China has been affected by increased tariffs and may be subject to further increased tariffs.

We rely upon vendors outside of the U.S.

for the substantial majority of our products.

The possible implementation of a border tax or new or increased tariffs could materially increase our cost of goods sold with respect to merchandise that we purchase from vendors who manufacture products outside the U.S., which could in turn require us to increase our prices and, in the event consumer demand declines as a result, negatively impact our results of operations.

Furthermore, certain of our competitors may be better positioned than us to withstand or react to border taxes, tariffs or other restrictions on global trade and as a result, we may lose market share to such competitors.

Due to broad uncertainty regarding the timing, content and extent of any regulatory changes in the U.S.

or abroad, we cannot predict the impact, if any, that these changes could have to our business, financial condition and results of operations.

We also face uncertainty in the interpretation of new tariffs and their applicability, including with respect to customs valuation, product classification and country-of-origin determinations.

Although we and our vendors seek to comply with applicable customs laws and regulations, the application of rules regarding new tariffs can be subject to varying interpretations or future re-interpretations.

It is possible that U.S.

Customs and Border Protection or other relevant authorities could, upon review or audit, disagree with the valuation, rules of origin or classification methods applied to certain merchandise.

Any such disagreement could result in the retroactive assessment of additional duties with interest, the imposition of penalties, or other enforcement actions without the ability to mitigate such penalties, thereby adversely affecting our operations or financial results.

Additionally, the availability of certain goods could be affected if suppliers choose to limit their exposure to U.S.

markets in response to unfavorable trade policies, and we may be unable to source alternatives quickly enough to avoid interruptions in product supply.

Further, these changes to tariffs or other rules related to cross border trade, could materially increase our cost of goods sold with respect to products that we purchase from vendors who manufacture products abroad, which could in turn require us to increase our prices and, in the event consumer demand declines as a result, negatively impact our financial performance.

Certain of our competitors may be better positioned than us to withstand or react to these kinds of changes including border taxes, tariffs or other restrictions on global trade and as a result we may lose market share to such competitors.

In addition, while we may be able to continue to expand and shift our sourcing options, such expansion is time consuming and would be difficult or impracticable for many products and may result in an increase in our manufacturing costs.

Due to broad uncertainty regarding the timing, content and extent of any regulatory changes in the United States or abroad, we cannot predict the impact, if any, that these changes could have to our business, financial condition and results of operations.

Due to broad uncertainty regarding the timing, content and extent of any

regulatory changes in the United States or abroad, we cannot predict the impact, if any, that these changes could have to our business, financial condition and results of operations.

Our reliance on suppliers in developing countries increases our risk with respect to available manufacturing infrastructure, labor and employee relations, political and economic stability, corruption, and regulatory, environmental, health and safety compliance.

9 unchanged sentences

We rely on third-party shipping companies to deliver our products to us.

as a result, we are subject to various risks that are beyond our control, including labor disputes, union organizing activity, the closure of such shipping companies’ offices or a reduction in operational capacity due to an economic slowdown or the inability to sufficiently ramp up operational capacity during an economic recovery or upturn, outbreaks of diseases (such as the COVID-19 pandemic), increased fuel costs and costs associated with any regulations to address climate change, and other factors affecting the shipping industry’s capacity or ability to deliver our products to us.

We cannot guarantee that products we receive from suppliers will be of sufficient quality or free from damage, or that such products will not be damaged during shipping, while stored in one of our distribution facilities, or when returned by customers.

Our ability to efficiently ship products to customers has been and may be in the future negatively affected by factors beyond our and the shipping companies' control,which may include labor disputes, union organizing activity, supply chain issues, the closure of such shipping companies’ offices or a reduction in operational capacity due to an economic slowdown or the inability to sufficiently ramp up operational capacity during an economic recovery or upturn, health pandemics and epidemics, political instability, military conflict, increased fuel costs and costs associated with any regulations to address climate change, and other factors affecting the shipping industry’s capacity or ability to deliver our products to us.

For example, ocean freight capacity issues increased during the COVID-19 pandemic which resulted in greater demand for shipping and reduced capacity and equipment, which resulted in increases in shipping container rates.

As a result, our inventory levels were adversely impacted and resulted in elevated, and sometimes lengthy, customer backorders.

While the pandemic-era disruptions have largely subsided, if in the future there are transportation delays, increases on costs of shipping containers, more extensive travel restrictions, closures or disruptions of businesses and facilities or social, economic, political or labor instability in the affected areas, as a result of pandemics or otherwise, these developments could have a material adverse effect on our business, financial condition, operating results and prospects.

Additionally, a recent proposal by the U.S.

to impose new port fees on Chinese-operated and built vessels and to restrict a percentage of U.S.

products from being transported on non-U.S.

vessels could have the potential to dramatically impact shipping capacity and costs.

The actual implementation of these proposed actions remains uncertain.

The final form, scope, and effective dates of any measures that are ultimately adopted may significantly differ from the current proposals.

Furthermore, retaliatory measures from China or other nations could further compound disruptions and cost increases within the global shipping industry.

This proposal could result in a significant increase in our shipping costs, cause inventory disruptions and have a material adverse effect on our operations and financial results.

Additionally, we cannot guarantee that products we receive from suppliers will be of sufficient quality or free from damage, or that such products will not be damaged during shipping, while stored in one of our distribution facilities, or when returned by customers.

While we take measures to ensure the products' quality and avoid damage, including evaluating supplier product samples, conducting inventory inspections and inspecting returned products, we cannot control the products while it is out of our possession or prevent all damage while in our distribution facilities.

In addition, ocean freight capacity issues increased during the COVID-19 pandemic and could continue to persist worldwide.

If this were to occur, there could be much greater demand for shipping and reduced capacity and equipment, which could result in pandemic price increases per shipping container.

Streamlined ships were charging priority booking fees to allocate space as they had less ships and workers operating.

While we continue to manage and evaluate our freight carriers, there is some indication that shipping container rates will return to lower levels in the near-term and these rate changes could have a material effect on our results of operations.

Our third-party shipping companies experienced transportation disruptions and restrictions due to the COVID-19 pandemic and delays stemming from delayed shipments from Asian ports, congestion at west coast ports, more extensive travel restrictions, closures or disruptions of businesses and facilities and a shortage of shipping containers needed to ship our products, which adversely impacted our inventory levels and resulted in elevated, and sometimes lengthy, customer backorders.

Any of these developments, should they return to pandemic levels, could have a material adverse effect on our business, financial condition, operating results and prospects.

Increases in the demand for, or the price of, raw materials used to manufacture our products or other fluctuations in sourcing or distribution costs could increase our costs and negatively impact our gross margin.

Our gross margin depends, in part, on our ability to mitigate rising costs or shortages of raw materials used to manufacture our products.

Raw materials used to manufacture our products are subject to availability constraints and price volatility impacted by a number of factors, including supply and demand for fabrics, weather, government regulations, economic conditions, economic and political instability, and other unpredictable factors.

Raw materials used to manufacture our products are subject to availability constraints and price volatility impacted by a number of factors, including supply and demand for fabrics, steel and metal components, and electronic components, weather, government regulations, economic conditions, economic and political instability, and other

unpredictable factors.

In addition, our sourcing costs may fluctuate due to labor conditions, transportation or freight costs, energy prices, currency fluctuations, tariffs and trade restrictions, public health crises, or other unpredictable factors.

The occurrence of any of the foregoing could increase our costs, delay or reduce the availability of our products and negatively impact our gross margin.

For example, members of the U.S.

Government have called for substantial changes to tax policies, including the possible implementation of a border tax.

The U.S Government has also raised the possibility of other initiatives that may affect importation of goods including renegotiation of trade agreements with other countries and the introduction of new or increased import duties or tariffs with respect to products from a number of different countries.

has imposed or proposed the imposition of new tariffs on products imported into the U.S.

from a number of countries.

If maintained, these and other newly announced tariffs and the potential escalation of trade disputes could increase price and supply pressures.

Although we instituted measures to ensure our supply chain remains open to us, we have in the past, and may in the future continue to, experience raw material supply chain challenges related to suppliers negatively impacted by macroeconomic factors and shipping delays.

2 unchanged sentences

Higher raw material prices and costs of sourced products could have an adverse effect on our future margins.

We expect raw material prices to remain at historically high levels in many categories during fiscal 2025 due to price inflation in certain raw materials and global supply chain complexities.

We expect raw material prices to remain at historically high levels in many categories during fiscal 2026 due to price inflation and increased tariffs in certain raw materials and global supply chain complexities.

Macroeconomic factors, such as inflation, will continue to introduce uncertainty into many markets, especially with respect to freight and labor availability.

9 unchanged sentences

Either of these events could significantly affect our operating results and brand image and loyalty.

Our lease obligations are substantial and expose us to increased risks.

We are required to make substantial lease payments under our leases, and any failure to make these lease payments when due would likely harm our business.

In addition, many of our leases contain relocation clauses that allow the landlord to move the location of our showrooms.

As our leases expire, we may be unable to negotiate acceptable renewals.

We do not own any of our showrooms.

4 unchanged sentences

We expect that any new showrooms we open will also be leased, which will further increase our lease expenses and require significant capital expenditures.

We depend on cash flow from operations to pay our lease expenses and to fulfill our other cash needs.

If our business does not generate sufficient cash flow from operating activities,

and sufficient funds are not otherwise available to us from other sources, we may not be able to service our substantial lease expenses, which would harm our business.

Our substantial lease obligations could have significant negative consequences, including, among others:

4 unchanged sentences

• placing us at a disadvantage with respect to some of our competitors who sell their products exclusively online.

We are required to make substantial lease payments under our leases, and any failure to make these lease payments when due would likely harm our business.

In addition, many of our leases contain relocation clauses that allow the landlord to move the location of our showrooms.

As our leases expire, we may be unable to negotiate acceptable renewals.

We depend on cash flow from operations to pay our lease expenses and to fulfill our other cash needs.

If our business does not generate sufficient cash flow from operating activities, and sufficient funds are not otherwise available to us from other sources, we may not be able to service our substantial lease expenses, which would harm our business.

Moreover, our showroom leases are generally long term and non-cancelable, and we generally expect future showrooms to be subject to similar long term, non-cancelable leases.

3 unchanged sentences

In addition, as our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close showrooms in desirable locations.

also be unable to enter into new leases on terms acceptable to us or in desirable locations.

We may also be unable to enter into new leases on terms acceptable to us or in desirable locations.

If any of the foregoing occur, our business, sales and results of operations may be harmed.

11 unchanged sentences

Information distributed via social media could result in immediate unfavorable publicity we may not be able to reverse.

Our ability to prevent Internet publication of false or misleading information regarding our products or the Company is limited.

We rely in part upon third parties, such as social media influencers, to market its brand, and are unable to fully control their efforts.

13 unchanged sentences

Our site selection has evolved to include lifestyle and strip shopping centers.

Sales at these

showrooms are derived, in part, from the volume of foot traffic in these locations.

Sales at these showrooms are derived, in part, from the volume of foot traffic in these locations.

Showroom locations may become unsuitable due to, and our sales volume and customer traffic generally may be harmed by, among other things:

5 unchanged sentences

• reduced customer foot traffic outside a showroom location;

• store impairments due to acts of God, pandemic, terrorism, protest or periods or civil unrest.

• store impairments due to acts of God, climate-related events, pandemic, terrorism, protest or periods or civil unrest.

Even if a showroom location becomes unsuitable, we will generally be unable to cancel the long-term lease associated with such showroom.

We may be unable to successfully open and operate new showrooms, which could have a material adverse effect on our business, financial condition, operating results and prospects.

As of February 4, 2024, we had 230 showrooms, including 6 kiosks and 2 mobile concierges, but our growth strategy requires us to increase our showroom base.

As of February 2, 2025, we had 257 showrooms, including 1 kiosk and 2 mobile concierges, but our growth strategy requires us to increase our showroom base.

There can be no assurance that we will succeed in opening additional showrooms.

4 unchanged sentences

• obtain labor and materials required to construct our showrooms that can achieve capital payback requirements;

• obtain desired locations, including showroom size and adjacencies, in targeted high traffic street and urban locations and top tier malls;

• obtain desired locations, including showroom size and adjacency, in targeted high traffic street and urban locations and top tier malls;

• adapt our showrooms to address public health crises;

9 unchanged sentences

In addition, new showroom openings may negatively impact our financial results due to the effect of opening costs and lower sales during the initial period following opening.

New showrooms, particularly those in new markets, build their

brand recognition and customer base over time and, as a result, may have lower margins and incur higher operating expenses.

New showrooms, particularly those in new markets, build their brand recognition and customer base over time and, as a result, may have lower margins and incur higher operating expenses.

Unavailability of desired showroom locations, delays in the acquisition or opening of new showrooms, delays or costs resulting from a decrease in commercial development due to capital restraints, difficulties in staffing and operating new showroom locations or a lack of customer acceptance of showrooms in new market areas may negatively impact our new showroom growth and the costs or the profitability associated with new showrooms.

10 unchanged sentences

We intend to continue remodeling our existing showroom base to reflect our new showroom design, and we intend to expend capital doing so.

Our new showroom concept is designed to increase customer traffic and sales by emphasizing our unique product platform and using experiential technology.

Our new showroom concept is designed to increase customer traffic and sales by emphasizing our

unique product platform and using experiential technology.

However, there is no guarantee that the capital spent on these remodeled showrooms will result in increased showroom traffic or increased sales.

10 unchanged sentences

The online market for furniture is less developed than the online market for apparel, consumer electronics and other consumer products in the United States.

While we believe this market is growing, it still accounts for a small percentage of the market as a whole.

While we believe this market is growing, it still accounts for a relatively smaller percentage of the market as a whole.

We are relying on online sales for our continued success and growth.

If the online market for furniture does not gain wider acceptance, our growth and business may suffer.

If the online market for furniture does not continue to gain wider acceptance, our growth and business may suffer.

In addition, our success in the online market will depend, in part, on our ability to attract consumers who have historically purchased furniture through traditional retailers.

17 unchanged sentences

• the reliance on third-party computer hardware/software providers;

• rapid technological change;

• rapid technological change, including as a result of artificial intelligence;

• liability for online content;

12 unchanged sentences

In addition, the impacts of climate change may alter customer preferences toward increased demand for climate-friendly products, resulting in a potential loss in market share if we fail to meet this demand.

We have elected to set and publicly share corporate ESG metrics related to reducing our impact on the environment.

We have elected to set and publicly share corporate sustainability metrics related to reducing our impact on the environment.

These statements reflect our current plans and aspirations and are not guarantees that we will be able to achieve them.

17 unchanged sentences

Under current credit card practices, we may be liable for fraudulent credit card transactions.

Our failure to adequately

prevent fraudulent transactions could damage our reputation, result in litigation or regulatory action and lead to expenses that could harm our business, financial condition, operating results and prospects.

Our failure to adequately prevent fraudulent transactions could damage our reputation, result in litigation or regulatory action and lead to expenses that could harm our business, financial condition, operating results and prospects.

Financial Risks

5 unchanged sentences

If we sell any such equity securities in subsequent transactions, investors may be materially diluted.

Concerns over the economic impact of rising inflation and interest rates, slower growth or recession, new or increased tariffs, decreased consumer confidence in the economy and armed hostilities, have caused extreme volatility in financial and capital markets, which has adversely impacted our stock price and may materially adversely affect our ability to access capital markets.

Concerns over the economic impact of fluctuating inflation and interest rates, slower growth or recession, new or increased tariffs, decreased consumer confidence in the economy and armed hostilities, have caused extreme volatility in financial and capital markets, which has adversely impacted our stock price and may materially adversely affect our ability to access capital markets.

Debt financing, if available, may involve restrictive covenants and could reduce, among other things, our operational flexibility.

6 unchanged sentences

Although these weaknesses have been remediated, if we experience additional material weaknesses or other deficiencies in our internal control over financial reporting in the future or otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.

As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control.

We are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control.

Section 404 of the Sarbanes-Oxley Act (“Section 404”) requires that we furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting.

3 unchanged sentences

Any failure to maintain or implement required new or improved controls, or difficulties encountered in implementation could cause us to fail to meet our reporting obligations.

Our disclosure controls and procedures and internal controls over financial reporting have in the past been subject to deficiencies and material weaknesses, and we cannot assure you that additional material weaknesses will not arise in the future.

As previously disclosed, we identified material weaknesses in our internal control over financial reporting, which resulted in the restatement of our financial statements as of and for the year ended January 29, 2023, and the unaudited condensed quarterly financial information for the quarterly periods ended April 30, 2023, October 30, 2022, July 31, 2022 and May 1, 2022.

Although the material weaknesses have been remediated, these remediation measures have been time consuming and costly and may continue to incur additional time and expense.

Additionally, we previously identified in our Annual Report on Form 10-K for the year ended January 30, 2022 a material weakness in our internal control over financial reporting relating to ineffective information technology general controls, which has been remediated.

Our disclosure controls and procedures and internal controls over financial reporting have in the past been subject to deficiencies and material weaknesses which resulted in the restatement of our financial statements , and we cannot assure you that additional material weaknesses will not arise in the future.

If other material weaknesses or other deficiencies arise in the future or if our independent registered public accounting firm is unable to express an opinion or expresses a qualified or adverse opinion about the effectiveness of our internal control over financial reporting, we may be unable to accurately report our future financial results, which could cause our future financial results to be materially misstated and require additional restatement.

In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements.

We may also have difficulty accessing capital on favorable terms, or at all, be subject to fines, penalties or judgments, and incur reputational harm which may materially and adversely affect our business, results

of operations and financial condition.

Additionally, investors may lose confidence in our financial reporting and our stock price may decline as a result.

Additionally, we have recently experienced high employee turnover in our accounting department which has results in significant time and expense relating to identifying, recruiting, hiring, relocating and integrating qualified individuals.

Additionally, we have in the past experienced high employee turnover in our accounting department which has results in significant time and expense relating to identifying, recruiting, hiring, relocating and integrating qualified individuals.

High employee turnover of key personnel may deplete our institutional knowledge base, erode our competitiveness and impact our internal controls and our financial reporting.

3 unchanged sentences

As previously disclosed, we reached a determination to restate our financial statements as of and for the year ended January 29, 2023, and the unaudited condensed quarterly financial information for the quarterly periods ended April 30, 2023, October 30, 2022, July 31, 2022 and May 1, 2022.

As a result, we have voluntarily self-reported to the SEC information concerning the internal investigation of these accounting matters.

As a result of self-reporting, the Company is the subject of an ongoing, non-public investigation by the SEC.

Although the Company is fully cooperating with the SEC in its investigation and continues to respond to requests in connection with this matter, the Company cannot predict when such matters will be completed or the outcome and potential impact.

Additionally, we have incurred and expect to continue to incur significant professional fees and other costs in responding to the SEC investigation.

Further, if the SEC were to conclude that enforcement action is appropriate, we could be required to pay large civil penalties and fines.

The SEC also could impose other sanctions against us or certain of our current and former directors and officers.

Any of these events could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Additionally, while we believe we have made appropriate judgments in determining the errors and correct adjustments in preparing our restated financial statements, the SEC may disagree with the manner in which we have accounted for and reported these adjustments.

Accordingly, there is a risk that we may have to further restate our historical financial statements, amend prior filings with the SEC or take other actions not currently contemplated.

As a result, we voluntarily self-reported to the SEC information concerning the internal investigation of these accounting matters.

As a result of self-reporting, the Company was the subject of a non-public investigation by the SEC.

The Company cooperated fully with the SEC in its investigation, and on October 29, 2024, the Company agreed to a settlement to resolve the claims against it.

Without admitting or denying the SEC’s allegations, we agreed to the entry of a final judgment ordering us to pay a $1.5 million civil penalty and imposing a permanent injunction against future violations of Section 17(a)(3) of the Securities Act of 1933 and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and the associated rules thereunder.

As a result of the restatements, we have become subject to a number of additional risks and uncertainties, which may affect investor confidence in the accuracy of our financial disclosures and may raise reputational issues for our business.

Specifically, we were involved in a putative securities class action that was filed against us and certain of our current and former officers, which we have settled.

We are currently involved in certain putative shareholder derivative actions filed on behalf of the Company against certain of its current and former officers and directors.and may in the future be subject to additional litigation or other disputes, which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement.

We cannot assure that all of the risks and challenges described above will be eliminated or that general reputational harm will not persist.

If one or more of the foregoing risks or challenges persist, our business, operations and financial condition are likely to be materially and adversely affected.

We expect to continue to face many of the risks and challenges related to the restatement.

Specifically, we are involved in and may in the future be subject to additional litigation or other disputes, which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement.

In particular, on December 19, 2023, a putative securities class action was filed against us and certain of our current and former officers in the United States District Court for the District of Connecticut captioned Gutknecht v.

The Lovesac Company , No.

3:23-cv-1640 to recover damages allegedly caused by violations of federal securities law in connection with the restatements.

Other potential plaintiffs may also file additional lawsuits in connection with the restatement.

The outcome of any such litigation is uncertain.

The defense or settlement of this litigation and any future additional litigation could be time-consuming and expensive, divert the attention of management away from our business, and, if any litigation is adversely resolved against us, could have a material adverse effect on our financial condition.

Any additional regulatory consequences, litigation, claim or dispute, whether successful or not, could subject us to additional costs, divert the attention of our management, or impair our reputation.

Each of these consequences could have a material adverse effect on our business, results of operations and financial condition.

We may be unable to accurately forecast our operating results and growth rate, which may adversely affect our reported results and stock price.

We may not be able to accurately forecast our operating results and growth rate.

We use a variety of factors in our forecasting and planning processes, including historical results, recent history and assessments of economic and market conditions.

We use a variety of factors in our forecasting and planning processes, including historical results, recent history and assessments of economic and market

Our growth rates may not be sustainable, and our growth depends on the continued growth of demand for the products we offer.

1 unchanged sentence

Furthermore, many of our expenses and investments are fixed, and we may not be able to adjust our spending in a timely manner to compensate for any unexpected shortfall in our operating results.

Failure to accurately forecast our operating results and growth rate could cause our actual results to be materially lower

than anticipated.

Failure to accurately forecast our operating results and growth rate could cause our actual results to be materially lower than anticipated.

If our growth rate declines as a result, investors’ perceptions of our business may be adversely affected, and the market price of our common stock could decline.

We may not be able to fully utilize our media credits if our third-party vendor ceases operations or if there are significant changes to our marketing strategy before the credits expire.

The Company recognizes an asset for media credits obtained through barter transactions with a third-party vendor.

We utilize these marketing credits as a percentage of certain advertising costs.

If our third-party experiences a material adverse effect on their business, they may be unable to offer the level of advertising needed to fully utilize our remaining credits.

If our business or the broader macroeconomic environment experiences a material change to advertising or marketing strategies, we may be unable to fully utilize our credits prior to expiration.

If we determine through evaluation that we may not be able to fully utilize our remaining credits, the Company may be required to impair the remaining credits, and that impairment could have a material adverse effect on our financial statements.

Legal, Tax and Regulatory Risks

9 unchanged sentences

The risk of a security breach or disruption, particularly through cyberattack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

As artificial intelligence capabilities improve and are increasingly adopted, we may see cyber-attacks utilizing or exploiting artificial intelligence.

Additionally, because techniques used to obtain unauthorized access to systems and networks are increasingly sophisticated and constantly evolving, we may not be able to anticipate, detect, or prevent all attacks until after they have already been launched.

For example, as artificial intelligence continues to evolve, cyber-attackers could also use artificial intelligence to develop malicious code and sophisticated phishing attempts.

Our information technology network and systems have been and, we believe, continue to be under constant attack.

4 unchanged sentences

Failure to comply with personal data protection and privacy laws, and other laws and regulations applicable to our business, can adversely affect our business.

We are subject to a variety of continuously evolving and developing laws and regulations in numerous jurisdictions regarding personal data protection and privacy laws, including the California Consumer Privacy Act, which was significantly modified by the California Privacy Rights Act, new privacy legislation passed in Virginia, Colorado, Utah and Connecticut, as well as the European Union's General Data Protection Regulation and China's Personal Information Protection Act.

We are subject to a variety of continuously evolving and developing laws and regulations in numerous state, federal and foreign jurisdictions regarding personal data protection and privacy laws, including the California Consumer Privacy Act, which was significantly modified by the California Privacy Rights Act, new privacy legislation passed in an increasing number of states, as well as the European Union's General Data Protection Regulation and China's Personal Information Protection Act.

Failure to comply with these laws and regulations or to otherwise protect personal data from unauthorized access, use or other processing, could result in litigation, claims, legal or regulatory proceedings, inquiries or investigations, damage to our reputation, fines or penalties, all of which can adversely affect our business.

1 unchanged sentence

Our agreements with certain customers and business partners may also subject us to certain requirements related to our processing of personal information, including obligations to use industry-standard or reasonable security measures to safeguard personal information.

jurisdictions, and we cannot yet determine always predict the impact of such future laws, regulations, and standards may have on our business.

We also expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States, the European Union and other jurisdictions, and we cannot yet determine always predict the impact of such future laws, regulations, and standards may have on our business.

We expect that existing laws, regulations, and standards may even be interpreted differently or inconsistently relative to each other in the future.

18 unchanged sentences

There may also be other prior registrations of trademarks identical or similar to our trademarks in other foreign countries of which we are not aware.

Accordingly, it may be possible for others to prevent the manufacture of our branded merchandise in certain foreign countries or the sale or exportation of our branded merchandise from certain foreign countries to the United States.

Accordingly, it may be possible for others

to prevent the manufacture of our branded merchandise in certain foreign countries or the sale or exportation of our branded merchandise from certain foreign countries to the United States.

If we were unable to reach a licensing arrangement with these parties, we might be unable to manufacture our products in those countries.

18 unchanged sentences

Any litigation or other dispute resolution mechanism, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel, which may materially adversely affect our business, financial condition, operating results and prospects.

Increasing regulations and expectations on environmental, social and governance factors may impose additional costs and expose us to new risks.

Many investors, customers and other key stakeholders have increased their focus on ESG factors and corporate responsibility.

As a result, there is a strong emphasis on ESG ratings and several third parties have created numerous standards by which they measure a company's corporate responsibility performance.

In addition, these ESG standards may continue to change causing us to make substantial investments to satisfy them in order to meet the expectations of our investors, customers and other stakeholders.

If we are unable to satisfy these ESG standards, our investors, customer and stakeholders may conclude that our policies and performance with respect to corporate responsibility are inadequate.

Our inability to meet these standards may harm our brand and reputation, and our investments in ESG may impact our results of operations.

Furthermore, if our competitors’ corporate responsibility performance is perceived to be greater than ours, we may lose current or future investors who may elect to invest with our competitors instead.

In addition, we have and intend to continue to communicate our ESG goals and priorities.

If we do not achieve these goals and priorities, or fail to meet the expectations of investors and other key stakeholders, our reputation and financial results could be materially and adversely affected.

In addition, there is also uncertainty regarding potential laws, regulations and policies related to ESG and global environmental sustainability matters, including disclosure obligations and reporting on such matters.

Changes in the legal or regulatory environment affecting ESG and sustainability disclosure, responsible sourcing, supply chain transparency, or environmental protection, among others, including regulations to limit carbon dioxide and other greenhouse gas emissions, to discourage the use of plastic or to limit or to impose additional costs on commercial water use may result in increased compliance costs for us and our business partners, all of which may negatively impact our results of operations, financial condition and cash flows.

Evolving government regulations and investor expectations on environmental, social and governance factors may impose additional costs and expose us to new risks.

There is uncertainty regarding potential laws, regulations and policies related to global environmental sustainability matters, climate change laws and regulations, including disclosure obligations and reporting on such matters.

We could fail, or be perceived to fail to act responsibly, in our efforts, or we could fail in accurately reporting our progress on such initiatives and goals.

We may be subject to product liability claims if people or property are harmed by the products we sell.

3 unchanged sentences

Some of our agreements with our suppliers and international manufacturers may not indemnify us from product liability for a particular supplier’s or international manufacturer’s products, or our suppliers or international manufacturers may not have sufficient resources or insurance to satisfy their indemnity and defense obligations.

Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities

actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.

Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.

Any product liability claims asserted against us could, among other things, harm our reputation, damage our brand, cause us to incur significant costs, and have a material adverse effect on our business, results of operations and financial condition.

4 unchanged sentences

Material warranty claims could, among other things, harm our reputation and damage our brand, cause us to incur significant repair and/or replacement costs, and have a material adverse effect on our business, financial condition, operating results and prospects.

We are and may in the future be subject to securities litigation, which is expensive and could divert management attention.

We are involved in and may in the future be subject to litigation or other disputes, which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatements, market price volatility or other factors.

The Lovesac Company, No.

3:23-cv-1640 to recover damages allegedly caused by violations of federal securities law in connection with the restatements.

Additionally, three putative shareholder derivative actions have been filed in the United States District Court for the District of Connecticut on behalf of the Company against certain of its current and former officers and directors.

The cases assert claims on behalf of the Company for breach of fiduciary duty, violations of the Exchange Act, unjust enrichment, corporate waste, and aiding and abetting primary violations.

Other potential plaintiffs may also file additional lawsuits in connection with the restatement.

The outcome of any such litigation is uncertain.

Additionally, the market price of our common stock has been and may continue to be volatile.

As a result, we may be the target of securities class action litigation in the future.

The defense or settlement of this litigation and any future litigation could be time-consuming and expensive, divert the attention of management away from our business, and, if any litigation is adversely resolved against us, could have a material adverse effect on our financial condition.

Each of these consequences could have a material adverse effect on our business, results of operations and financial condition.

Government regulation of the Internet and ecommerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.

4 unchanged sentences

It is possible that general business regulations and laws, or those specifically governing the Internet or ecommerce, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices.

Additionally, we are subject to various federal, state and local consumer protection, pricing transparency and false advertising laws that regulate retailers and

govern the marketing, advertising, promotion and sale of merchandise, including California’s Consumer Legal Remedies Act.

Though we seek at all times to be in full compliance with all such laws, we cannot be sure that our practices have complied, comply or will comply fully with all such laws and regulations.

2 unchanged sentences

We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations.

In particular, we are subject to a putative class action lawsuit in California related to the Company’s pricing practices.

The complaint generally alleges that the Company falsely advertised discounts on certain products.

The plaintiff seeks, among other things, an unspecified amount of monetary damages, including treble damages, punitive damages, injunctive relief related to the Company’s sales practices, and attorneys’ fees, expert fees, and other expenses.

Although we intend to defend ourselves vigorously against the claims asserted against us, we cannot predict the potential outcomes, cost and expenses associated with current and any future claims and lawsuits.

Any damages, legal fees, or costs associated with litigating or resolving claims under any such laws could be material.

Our products or marketing activities may be found to infringe or violate the intellectual property rights of others.

23 unchanged sentences

• the societal and economic impact of macroeconomic factors, public health crises and international conflicts.

We are and may in the future be subject to securities litigation, which is expensive and could divert management attention.

The Lovesac Company , No.

3:23-cv-1640 to recover damages allegedly caused by violations of federal securities law in connection with the restatements.

Other potential plaintiffs may also file additional lawsuits in connection with the restatement.

The outcome of any such litigation is uncertain.

Additionally, the market price of our common stock has been and may continue to be volatile.

As a result, we may be the target of securities class action litigation in the future.

Each of these consequences could have a material adverse effect on our business, results of operations and financial condition.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

7 unchanged sentences

The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the current price per share of our common stock.

We cannot guarantee that our share repurchase program will be fully consummated or will enhance long-term stockholder value, and share repurchases could increase the volatility of the trading price of our common stock and diminish our cash reserves.

In June 2024, our Board of Directors approved a share repurchase program under which we are authorized to purchase up to $40.0 million of our common stock from time to time.

Our share repurchase program does not have an expiration date and does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares on any particular timetable or at all.

There can be no assurance that we will repurchase shares at favorable prices or at all.

Further, our share repurchases could affect the trading price of our common stock, increase its volatility, reduce the market liquidity for our stock and may be suspended or terminated at any time, which may result in a lower market valuation of our common stock.

Repurchasing our common stock will reduce the amount of cash we have available to fund working capital, capital expenditures, strategic acquisitions or business opportunities, and other general corporate purposes.

The actual timing, number and value of shares repurchased will depend on various factors, including the market price of our common stock, trading volume, general market conditions and other corporate and economic considerations.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our Company more difficult, and limit attempts by our stockholders to replace or remove our current management.

16 unchanged sentences

The amended and restated bylaws also require us, if so requested, to advance expenses that such director or officer incurred in defending or investigating a threatened or pending action, suit or proceeding, provided that such person will return any such advance if it is ultimately determined that such person is not entitled to indemnification by us.

Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

We have indemnified certain of our officers and directors and advanced expenses in connection with certain claims.

These claims have and any claims for indemnification by our directors and officers in the future may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our amended and restated bylaws designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, and designates the federal district courts of the United States as the sole and exclusive forum for claims arising under the Securities Act, which, in each case could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers employees, agents or other stockholders.

28 unchanged sentences

In light of the foregoing, investors are urged not to rely upon our guidance in making an investment decision regarding our securities.

Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors” section, many of which are outside of our control, could result in the actual operating results being different from our guidance, and the differences may be adverse and material.

Any failure to successfully implement

our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors” section, many of which are outside of our control, could result in the actual operating results being different from our guidance, and the differences may be adverse and material.

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