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Item 1A. Risk Factors

2026-02-19 compared with 2025-02-20 · 102 added, 117 removed, 302 unchanged (42% of the section changed)

Certain factors may have a material adverse effect on our business, financial condition and results of operations.

The disclosures in this section reflect our beliefs and opinions as to factors that may have a material adverse effect on our business, financial condition and results of operations.

The risks and uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties we face.

You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes.

Any of the following risks could materially and adversely affect our business, results of operations, cash flows, financial condition, or prospects and cause the value of our common stock to decline.

References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past.

Market and Other External Risks

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The retail food business is sensitive to changes in general economic conditions.

Inflation, recessionary economic cycles, increases in interest rates, higher prices for commodities, raw materials, fuel and other energy, high levels of unemployment and consumer debt, depressed home values, high tax rates, tariffs and other macroeconomic factors that affect consumer spending and confidence or buying habits may materially adversely affect the demand for and prices of products we sell in our stores.

As a result, consumers may be more cautious and could reduce their spending in our stores or shift their spending to lower-priced competition, such as warehouse membership clubs, dollar stores, online retailers or extreme value formats, which could have a material and adverse effect on our operating results and financial condition.

Our operating results have been, and will continue to be, impacted by a number of macroeconomic factors, including inflation, recessionary economic cycles, increases in interest rates, higher prices for commodities, raw materials, fuel and other energy, high levels of unemployment and consumer debt, depressed home values, high tax rates, tariffs and other factors that affect consumer spending and confidence or buying habits.

These factors, which are largely outside of our control, may materially adversely affect the demand for and prices of products we sell in our stores.

As a result, consumers have been and may continue to be more cautious about product affordability and reduce their spending in our stores or shift their spending to lower-priced competition, such as warehouse membership clubs, conventional supermarkets, dollar stores, online retailers or extreme value formats, which could have a material and adverse effect on our operating results and financial condition.

In addition, prolonged inflation or deflation can impact our business.

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To the extent that our competitors offer lower prices or similar products, our ability to maintain profit margins and sales levels may be negatively impacted.

In addition, some competitors are aggressively expanding their number of stores or their product offerings, increasing the space allocated to fresh, natural and organic foods, and enhancing options of engaging with and delivering their products to customers.

In addition, some competitors are aggressively expanding their number of stores or their health and wellness product offerings, increasing the space allocated to fresh, natural and organic foods, and enhancing options of engaging with and delivering their products to customers.

Some of these competitors may have greater financial or marketing resources than we do and may be able to devote greater resources to sourcing, promoting and selling their products.

As competition in certain areas or platforms intensifies or competitors open stores or expand delivery options within close proximity to our stores, our results of operations and cash flows may be negatively impacted through a loss of sales, decrease in customer traffic and market share, reduction in margin from competitive price changes or greater operating costs.

As competition in certain areas or platforms intensifies or competitors open stores or expand health and wellness product offerings and delivery options within close proximity to our stores, our results of operations and cash flows may be negatively impacted through a loss of sales, decrease in customer traffic and market share, reduction in margin from competitive price changes or greater operating costs.

We rely heavily on sales of fresh produce and quality fresh, natural and organic products, and product supply disruptions may have an adverse effect on our profitability and operating results.

We have a significant focus on perishable products, including fresh produce and natural and organic products.

Sales of produce accounted for approximately 18% and 19% of our net sales in fiscal 2024 and 2023, respectively.

Sales of produce accounted for approximately 17% and 18% of our net sales in fiscal 2025 and 2024,

respectively.

We have generally not experienced significant difficulty to date in maintaining the supply of our produce and fresh, natural and organic products that meet our quality standards.

However, there is no assurance that these products will be available to meet our needs in the future.

and import regulations or restrictions on foreign-sourced products, stability of the global supply chain and the ability of our vendors to maintain required attributes or organic, non-genetically modified or other applicable third-party certifications for such products.

The availability of such products at competitive prices depends on many factors beyond our control, including the number and size of farms that grow natural or organic crops or raise livestock that meet our quality, welfare and production standards, animal disease outbreaks (such as avian flu), agricultural workforce availability, tariffs and import regulations or restrictions on foreign-sourced products, stability of the global supply chain and the ability of our vendors to maintain required attributes or organic, non-genetically modified or other applicable third-party certifications for such products.

Produce is also vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, storms, frosts, wildfires, earthquakes, hurricanes, pestilences and other extreme or abnormal environmental conditions, including the potential effects of climate change, any of which can lower crop yields and reduce crop size and quality.

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As of December 28, 2025, we operated 156 stores in California, making California our largest market representing 33% of our total stores in fiscal 2025.

We also have store concentration in Texas, Arizona, Florida and Colorado, operating 54, 47, 47 and 33 stores in those states, respectively, and representing 12%, 11%, 11% and 8% of our total stores in fiscal 2024, respectively.

As we execute our long-term growth strategy, we may become even more concentrated in these markets, as well as other identified expansion markets.

We also have store concentration in Texas, Florida, Arizona, and Colorado, operating 60, 58, 48 and 34 stores in those states, respectively, and representing 13%, 12%, 10% and 7% of our total stores in fiscal 2025, respectively.

As we continue to execute our long-term growth strategy, we may become even more concentrated in these markets, as well as other identified expansion markets.

In addition, we source a large portion of our produce from California, ranging from approximately 40% to approximately 70% depending on the time of year.

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These factors include, among other things, changes in demographics, population and employee bases;

workforce availability, regulation;

wage increases;

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Fluctuations in product and commodity availability and prices, including from the impact of tariffs, may impact profitability.

The availability of many products we sell, including produce, or products with ingredients such as wheat, corn, oils, milk, sugar, cocoa, nuts and other key commodities, may be impacted by weather events and catastrophic occurrences.

The availability of many products we sell, including produce and proteins, or products with ingredients such as wheat, corn, oils, milk, sugar, cocoa, nuts and other key commodities, may be impacted by weather events, animal disease outbreaks (such as avian flu) and other catastrophic occurrences.

These products and commodities are also subject to significant price fluctuations and may be impacted by economic factors such as tariffs and inflation.

For example, on February 1, 2025, the U.S.

government announced a 25% tariff on product imports from certain countries, including Mexico and Canada, and 10% tariffs on product imports from certain countries, including China.

Although certain of these tariffs were subsequently paused, any increase in prices of such products or key ingredients as a result of tariffs or otherwise may cause our vendors to seek price increases from us.

Any increase in prices of such products or key ingredients as a result of tariffs, inflation or

otherwise may cause our vendors to seek price increases from us.

Price decreases may result in our competitors reducing retail prices on products or items containing such ingredients.

loss of customers due to competitive conditions, which may impact gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions.

If we are unable to mitigate these fluctuations by passing the effects through to our customers, which will largely depend upon competitive market conditions, our profitability may be impacted either through increased costs to us or lower prices and loss of customers due to competitive conditions, which may impact gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions.

Supply chain disruptions may delay our store growth plans.

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We may require additional capital to fund the expansion of our business, and our inability to obtain such capital could harm our business.

To support our growth strategy, we must have sufficient capital to continue to make significant investments in our new and existing stores and advertising.

To support our growth strategy, we must have sufficient capital to continue to make significant investments in our new and existing stores.

If cash flows from operations are not sufficient, we may need additional equity or debt financing to provide the funds required to expand our business.

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Our continued growth depends, in large part, on our ability to open new stores and to operate those stores successfully.

Successful implementation of our long-term growth strategy depends upon a number of factors, including our ability to effectively achieve a level of cash flow or obtain necessary financing to support our expansion;

Successful implementation of our long-term growth strategy depends upon a number of

factors, including our ability to effectively achieve a level of cash flow or obtain necessary financing to support our expansion;

find suitable sites for new store locations;

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hire, train and retain skilled team members;

promote and market

promote and market new stores;

successfully execute and gain customer acceptance of our store format;

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In fiscal 2025, we opened 37 new stores.

In fiscal 2023, we opened 30 new stores and acquired two stores.

We currently expect to achieve approximately 10% annual unit growth and to open at least 35 new stores in 2025, including penetration of new markets with a greater concentration of new stores.

In fiscal 2024, we opened 33 new stores.

We currently expect to achieve approximately 10% annual unit growth and to open more than 40 new stores in 2026, including penetration of new markets with a greater concentration of new stores.

However, we may not achieve this expected level of new store growth due to inability to find suitable sites, supply chain disruptions or otherwise.

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These increased demands could cause us to operate our existing business less effectively, which in turn could cause deterioration in the financial performance of our existing stores.

Further, new store openings in markets where we have existing stores may result in reduced sales volumes at our existing stores in those markets.

Further, new store openings in markets where we have existing stores may result in reduced sales volumes at our existing stores in those markets, while new store openings in new markets may not perform as well as our established markets for a number of reasons, including lack of customer awareness of our offering.

If we experience a decline in performance, we may slow or discontinue store openings, or we may decide to close stores that we are unable to operate in a profitable manner.

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Therefore, real or perceived quality or food safety concerns, whether or not ultimately based on fact, and whether or not involving products prepared and/or sold at our stores or vendors that supply us with products or provide us with services, would cause negative publicity and lost confidence regarding our company, brand, or products, which could in turn harm our reputation and net sales, and could have a material adverse effect on our business, results of operations, cash flows or financial condition.

Any significant interruption in the operations of our distribution centers or supply chain network could disrupt our ability to deliver our produce and other products in a timely manner.

We self-distribute our produce through six distribution centers located in Arizona, Texas, northern California, southern California, Colorado and Florida.

Product recalls or other product liability claims could materially and adversely affect us.

Selling products for human and pet consumption involves inherent legal and other risks, including product contamination, spoilage, product tampering, allergens, or adulteration.

In the ordinary course of our business, we have recalled and may continue to recall products due to suspected or confirmed product adulteration, misbranding, tampering or other quality deficiencies.

Product recalls or market withdrawals could result in significant losses due to their costs, destruction of product, and lost sales.

Recalls can also negatively

affect consumer confidence in the safety and quality of the products we sell and could damage our reputation and disrupt our supply chain and the relations with our suppliers.

Any significant interruption in the operations of our distribution centers or supply chain network could disrupt our ability to deliver our produce, meat and seafood, and other products in a timely manner.

We self-distribute our produce, a portion of our meat and seafood and certain of our other products through six distribution centers located in Arizona, Texas, northern California, southern California, Colorado and Florida.

We also have entered into a partnership with a third-party produce distributor in Pennsylvania to supply fresh produce to our Mid-Atlantic stores.

As we further expand our geographic footprint or self-distribute additional product categories, we may require additional distribution centers or expansion of our existing distribution centers.

Any unanticipated or unusual expenses or significant interruption or failure in the operation of our distribution center infrastructure, such as disruptions due to fire, severe weather or other catastrophic events, cyberattacks, network or power outages, labor shortages or disagreements, shipping or infrastructure problems, food safety concerns, integration of new distribution centers or product categories into our supply chain network, inability of our new distribution centers to perform as

expected or contractual disputes with third-party service providers could result in increased expenses and adversely impact our ability to distribute produce and other products to our stores.

Such interruptions could result in lost sales and a loss of customer loyalty to our brand, as well as increased costs from third-party service providers.

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Labor shortages, work stoppages or wage increases in the transportation or other industries, long-term disruptions to the national and international transportation infrastructure, reduction in capacity and industry-specific regulations such as hours-of-service rules that lead to delays or interruptions of deliveries or increased costs could negatively affect our business.

Disruption of significant supplier relationships could negatively affect our business.

KeHE is our primary supplier of dry grocery and frozen food products, accounting for approximately 50% and 47% of our total purchases in fiscal 2024 and 2023, respectively.

Our current primary contractual relationship with KeHE continues through July 18, 2025 and provides that KeHE will be our primary supplier for all of our stores.

Our primary distributor of meat and seafood products accounted for approximately 14% of our total purchases in each of fiscal 2024 and 2023.

Due to this concentration of purchases from a small number of third-party suppliers, the cancellation or interruption of our distribution arrangements or the disruption, delay or inability of our suppliers to timely deliver product to our stores in quantities or within service parameters that meet our requirements may materially and adversely affect our operating results while we establish alternative supply chain channels due to lost sales, as well as increased costs from alternative distribution arrangements.

In addition, we are currently in the process of transitioning from our primary meat and seafood distributor.

We expect to initially transition to an intermediary third-party distributor and ultimately to a self-distribution model under which we will deal directly with our suppliers.

As with complex transitions of this magnitude, there are associated short-term risks, including in particular, potential product supply disruptions resulting in lost sales at our stores and transition-related expenses that exceed our expectations.

Another 3% of our total purchases in both fiscal 2024 and 2023 were made through our secondary supplier of dry grocery and frozen food products, UNFI.

We expect to extend our current contractual relationship with UNFI through December 31, 2025.

There is no assurance UNFI or other distributors will be able to fulfill our needs on favorable terms or at all.

Disruption of significant distributor relationships could negatively affect our business.

KeHE is our primary distributor of dry grocery and frozen food products, accounting for approximately 52% and 50% of our total purchases in fiscal 2025 and 2024, respectively.

Our current primary contractual relationship with KeHE continues through July 31, 2035 and provides that KeHE will be our primary distributor for all of our stores.

Another 12% and 3% of our total purchases in fiscal 2025 and 2024, respectively, were made through our secondary distributor of dry grocery and frozen food products, UNFI.

Our current primary contractual relationship with UNFI continues through July 31, 2026.

Due to this concentration of purchases from a small number of third-party distributors, the cancellation or interruption of our distribution arrangements or the disruption, delay or inability of our distributors to timely deliver product to our stores in quantities or within service parameters that meet our requirements may materially and adversely affect our operating results while we establish alternative supply chain channels due to lost sales, as well as increased costs from alternative distribution arrangements.

In addition, in 2025 we began the process of transitioning to a self-distribution model for meat and seafood.

As with complex transitions of this magnitude, we experienced and may continue to experience short-term challenges, including in particular, potential product supply disruptions resulting in lost sales at our stores and customer disruption and transition-related expenses that exceed our expectations.

There is no assurance KeHE, UNFI or other distributors will be able to fulfill our needs on favorable terms or at all.

If KeHE, UNFI or any of our other distributors or suppliers fail to fulfill their financial or contractual obligations or the products they distribute fail to comply with food safety, labeling or other laws and regulations, or face allegations of non-compliance, their operations may be disrupted and we could incur substantial related costs.

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Consolidation or dissolution of distributors or the manufacturers that supply them could reduce our supply options and detrimentally impact the terms under which we purchase products.

We may not be able to find replacement suppliers on commercially reasonable terms, which would have a material adverse effect on our financial condition, results of operations and cash flows.

We may not be able to find replacement distributors or suppliers on commercially reasonable terms, which would have a material adverse effect on our financial condition, results of operations and cash flows.

Disruptions to, security breaches or non-compliance involving, our information technology systems could harm our ability to run our business and expose us to potential liability and loss of revenues.

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In response to these wide-ranging cybersecurity and data privacy risks, we have implemented numerous security protocols in order to strengthen security, and we maintain a customary cyber insurance policy, but there can be no assurance breaches will not occur in the future, be detected in a timely manner or be covered by our insurance policy.

Significant expenditures could be required to remedy future cybersecurity problems and protect against future breaches.

Additionally, compliance with current and future

applicable federal and state privacy, cybersecurity and related laws, including for example the California Privacy Act of 2018 (“CCPA”) and the California Privacy Rights Act (“CPRA”), can be costly and time-consuming, and we could be subject to enforcement actions or penalties for non-compliance.

Significant expenditures could be required to remedy future cybersecurity problems and protect against future breaches, and such threats may continue to increase and evolve with the rapid evolution of artificial intelligence and machine learning technologies.

Additionally, compliance with current and future applicable federal and state privacy, cybersecurity and related laws, including for example the California Privacy Act of 2018 (“CCPA”) and the California Privacy Rights Act (“CPRA”), can be costly and time-consuming, and we could be subject to enforcement actions or penalties for non-compliance.

These costs could have a material adverse effect on our business, and our efforts may not meaningfully limit the success of future attempts to breach our information technology systems.

Our information technology systems may also fail to perform as we anticipate, and we may encounter difficulties or significant expenses in implementing new systems, adapting these systems to changing technologies or legal requirements or expanding them to meet the future needs and growth of our business.

If our systems are improperly implemented, breached, damaged, cease to function properly, do not function as anticipated or are perceived to have failed, we may have to make significant investments to fix or replace them;

Emerging technologies, including artificial intelligence and machine learning, may not deliver expected efficiencies and could introduce new risks.

If our systems are improperly implemented, breached, damaged, cease to function properly, do not function or provide benefits as anticipated or are perceived to have failed, we may have to make significant investments to fix or replace them;

suffer interruptions in our operations;

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and our brand and reputation with our customers may be harmed.

Various third parties, such as our service providers and suppliers, including our most significant suppliers, and payment processors and their suppliers ( i.e.

Various third parties, such as our service providers and suppliers, including our most significant distributors, and payment processors and their suppliers ( i.e.

, our fourth parties), also rely heavily on information technology systems, and any failure of these systems for any reason ( e.g.

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Our performance is impacted by trends regarding healthy lifestyles, product attributes, dietary preferences, convenient options, fresh, natural and organic products, meal solutions, ingredient transparency and sustainability, and vitamins and supplements, as well as new and evolving methods of engaging with and delivering our products to our customers.

Consumer preferences towards vitamins, supplements or fresh, natural and organic food products might shift as a result of, among other things, economic conditions, food safety perceptions, scientific research or findings regarding the benefits or efficacy of such products, national media attention and the cost, attributes or sustainability of these products.

Consumer preferences towards our offering of vitamins, supplements and fresh, natural and organic food products might shift as a result of, among other things, economic conditions, food safety perceptions, consumption patterns (including changes in behavior arising from the increased use of prescription weight-loss therapies such as GLP-1), scientific research or findings regarding the benefits or efficacy of such products, national media attention and the cost, attributes or sustainability of these products.

A change in consumer preferences away from our offerings would have a material adverse effect on our business.

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Our comparable store sales growth could be lower than our historical average for many reasons, including general economic conditions, competition, cycling prior year performance and the other matters discussed in these Risk Factors.

These factors may cause our comparable store sales results to be materially lower than in recent periods, which could harm our business and result in a decline in the price of our common stock.

These factors have caused and may continue to cause our comparable store sales results to be materially lower than in recent periods, which could harm our business and result in a decline in the price of our common stock.

We may be unable to maintain or improve our operating margins, which could adversely affect our financial condition and ability to grow.

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In addition, competition and pricing pressures from competitors and our inability to timely pass on product cost increases due to inflation or otherwise to our customers through retail price increases may also adversely impact our operating margins.

Both our inability to capture the efficiencies from scale and competition could have a material adverse effect on our business, financial condition, results of operations and cash flows and adversely affect the price of our common stock.

Both our inability to capture the efficiencies from scale and the impact of competition could have a material adverse effect on our

business, financial condition, results of operations and cash flows and adversely affect the price of our common stock.

If we fail to maintain our reputation and the value of our brand, our sales may decline.

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Our business depends on our ability to effectively manage our inventory.

We have historically experienced loss of inventory (also called shrink) due to damage, theft, spoilage, inventory management and

other causes.

We have historically experienced loss of inventory (also called shrink) due to damage, theft, spoilage, inventory management and other causes.

Sustained elevated levels of inventory shrink could adversely affect our results of operations and financial condition.

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The food retail industry is labor intensive.

Our continued success and ability to grow through new store openings is dependent upon our ability to attract, develop and retain qualified team members in our stores and at our store support offices who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and customers.

We face intense competition for qualified team members, many of whom are subject to offers from competing employers.

Our continued success and ability to grow through new store openings is dependent upon our ability to attract, develop and retain qualified team members in our stores and at our store support office who understand and appreciate our culture and values and are able to represent our brand effectively and establish credibility with our business partners and customers, particularly as we expand into new markets.

We face intense competition for qualified team members.

Due to a tight labor market, availability of talent and other factors, we have experienced, and could continue to experience, a shortage of labor for store positions.

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As we continue to grow and enter different regions, unions may attempt to organize all or part of our team member base at certain stores or within certain regions.

Responding to such organization attempts may distract management and team members and may have a negative financial impact on individual stores, or on our business as a whole.

Responding to such organization attempts may distract management

and team members and may have a negative financial impact on individual stores, or on our business as a whole.

Higher wage and benefit costs could adversely affect our business.

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We will require substantial cash flows from operations to make our payments under our operating leases, all of which provide for periodic increases in rent.

If we are not able to make the required payments under the leases, the lenders or owners of

the relevant stores, distribution centers or administrative offices may, among other things, repossess those assets, which could adversely affect our ability to conduct our operations.

If we are not able to make the required payments under the leases, the lenders or owners of the relevant stores, distribution centers or administrative offices may, among other things, repossess those assets, which could adversely affect our ability to conduct our operations.

In addition, our failure to make payments under our operating leases could trigger defaults under other leases or under agreements governing our indebtedness, which could cause the counterparties under those agreements to accelerate the obligations due thereunder.

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merging, dissolving, liquidating, consolidating, or disposing of all or substantially all of our assets;

paying dividends, making distributions, or redeeming capital stock;

dividends, making distributions, or redeeming capital stock;

entering into transactions with our affiliates;

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Legal proceedings could materially impact our business, financial condition, results of operations and cash flows.

Our operations, which are characterized by a high volume of customer traffic and data collection for transactions involving a wide variety of product selections, carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in some other industries.

Consequently, we may be a party to individual personal injury, product liability, intellectual property, data security and privacy, accessibility and other legal actions in the ordinary course of our business, including litigation arising from food-related illness or product labeling.

In addition, our team members may, from time to time, bring lawsuits against us

regarding injury, hostile work environment, discrimination, wage and hour disputes, sexual harassment, or other employment issues.

In recent years, there has been an increase in the number of discrimination and harassment claims across the United States generally.

Additionally, we could be exposed to industry-wide or class-action claims arising from products we carry or industry-specific business or employment practices.

We have been and will continue to be subject to litigation and other legal proceedings that may adversely affect our business, including claims brought by team members, customers, government agencies, suppliers, distributors, stockholders, job applicants or others.

Our operations, which are characterized by a high volume of customer traffic and data collection for transactions involving a wide variety of product selections, carry a higher exposure to litigation risk when compared to the operations of companies operating in some other industries.

Consequently, we have been and may in the future be a party to individual personal injury, product liability, intellectual property, data security and privacy, accessibility and other legal actions in the ordinary course of our business, including litigation arising from food-related illness, product labeling or marketing and advertising claims.

In addition, our team members may, from time to time, bring lawsuits against us regarding injury, hostile work environment, discrimination, wage and hour disputes, sexual harassment, or other employment issues.

Additionally, we could be exposed to industry-wide or class-action claims or governmental enforcement actions arising from products we carry or industry-specific business or employment practices.

The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify.

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As a result, litigation may materially adversely affect our business, financial condition, results of operations and cash flows.

See Note 17, “Commitments and Contingencies ” to our consolidated financial statements contained in Item 8 of this Annual Report on Form 10-K for information regarding certain legal proceedings in which we are involved.

We, as well as our vendors, are subject to numerous laws and regulations and our compliance with these laws and regulations may increase our costs, limit or eliminate our ability to sell certain products, raise regulatory enforcement risks, or otherwise adversely affect our business, reputation, results of operations, cash flows and financial condition.

Both FDA and USDA have broad authority to enforce their applicable statutes and regulations relating to the safety, labeling, manufacturing, distribution and promotion of foods, cosmetics, homeopathic and CBD products, and dietary supplements, including powers to issue a public warning letter to a company, publicize information about adulterated or misbranded products, institute an administrative detention of products, request or order a recall from the market, impose import restrictions and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution.

Both FDA and USDA have broad authority to enforce their applicable statutes and regulations relating to the registration and listing of products, safety, labeling, manufacturing, distribution and promotion of foods, cosmetics, homeopathic and CBD products, and dietary supplements, including powers to issue a public warning letter to a company, publicize information about adulterated or misbranded products, institute an administrative detention of products, request or order a recall from the market, impose import restrictions and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution.

Enforcement actions may also lead to follow-on consumer class action litigation.

Dietary Supplement, CBD and Homeopathic Product Risks.

Our sales of dietary supplements are regulated by FDA.

However, other public and private actors are increasingly targeting dietary supplement retailers and manufacturers for selling products that fail to adhere to requirements under the FDCA, as amended by DSHEA.

While the FDCA provides FDA with the authority to remove products from the market that are adulterated or misbranded, state actors, and the Plaintiffs’ Bar have been targeting retailers and manufacturers of dietary supplements for failing to adhere to current good manufacturing practices and for false or misleading product statements.

As a retailer of certain topical or ingestible CBD products, the FDA also has the authority to remove from the market any CBD product if it is adulterated, its labeling is false or misleading, it is otherwise misbranded, or if it violates any other FDCA or FDA requirement or regulation.

This enforcement authority extends to states that have legalized and regulated the distribution of CBD products.

States in which we operate have also imposed restrictions or permitting requirements for the sale of various CBD products.

The FDCA also provides FDA with the authority to remove homeopathic products from the market that are adulterated or misbranded or contain improper or excessive amounts of active ingredients.

Further, companies have also been targets for litigation on the basis of marketing homeopathic and CBD products with misbranding, misleading claims or quality issues.

Regulatory enforcement actions could interrupt the marketing and sales of products in our stores, including our private label products, severely damage our brand reputation and public image, increase the cost of products in our stores, result in product recalls or costly litigation, and impede our ability to deliver merchandise in sufficient quantities or quality to our stores, which could result in a material adverse effect on our business, financial condition, results of operations and cash flows.

Foods, Dietary Supplements, CBD and Homeopathic Product Risks.

Our sales of these products are regulated by FDA.

However, other public and private actors are increasingly targeting food and dietary supplement retailers and manufacturers for selling products that fail to adhere to requirements under the FDCA.

While the FDCA provides FDA with the authority to remove products from the market that are adulterated or misbranded, state governments and the Plaintiffs’ Bar have been targeting retailers and manufacturers of these products for failing to adhere to current good manufacturing practices and for false or misleading product claims

relating to nutritional or therapeutic value or structure or function claims.

States may also narrow their laws on the sale of CBD products in their states to conform to new federal laws.

Advertising and Product Claims Risks.

In connection with the marketing and advertisement of products we sell, we could be the target of claims relating to false or deceptive advertising, including under the oversight of the FTC and pursuant to the FTC Act and consumer protection statutes of some states.

Furthermore, in recent years, the FDA has been aggressive in enforcing its regulations with respect to nutrient content claims ( e.g.

, “low fat,” “good source of,” “calorie free,” etc.), unauthorized “health claims” (claims that characterize the relationship between a food or food ingredient and a disease or health condition), and other claims that impermissibly suggest therapeutic benefits for certain foods or food components.

Our reputation could also suffer from real or perceived issues involving the labeling or marketing of products we sell as “natural.” Although the FDA and the USDA have each issued statements regarding the appropriate use of the word “natural,” there is no single, U.S.

government-regulated definition of the term “natural” for use in the food industry.

The resulting uncertainty has led to consumer confusion, distrust and legal challenges.

Plaintiffs have commenced legal actions against a number of food companies and retailers that

market “natural” or similarly labeled products, asserting false, misleading and deceptive advertising and labeling claims, including claims related to genetically modified ingredients.

Should we become subject to similar claims, consumers may avoid purchasing products from us or seek alternatives, even if the basis for the claim is unfounded.

Adverse publicity about these matters may discourage consumers from buying our products.

Further, state governments and private plaintiffs target food, drug, and cosmetic retailers and manufacturers for false and misleading advertising and product compliance, including but not limited to natural, organic and GMO claims and statements, which could materially and adversely affect our reputation and profitability and cause consumers to lose confidence in the quality and safety of our products.

The cost of defending against any such claims could be significant.

Any loss of confidence on the part of consumers in the truthfulness of our labeling or ingredient claims would be difficult and costly to overcome and may significantly reduce our brand value.

Any of these events could adversely affect our reputation and brand and decrease our sales, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.

Organic and GMO Claims.

We are also subject to the USDA’s Organic Rule, which facilitates interstate commerce and the marketing of organically produced food, and provides assurance to our customers that such products meet consistent, uniform standards.

Compliance with the USDA’s Organic Rule also places a significant burden on some of our suppliers, which may cause a disruption in some of our product offerings.

Additionally, the USDA has promulgated regulations that require disclosure of whether food offered for sale contains bioengineered (GMO) ingredients or detectable genetic material that has been modified through certain lab techniques and cannot be created through conventional breeding or found in nature.

Implementation began in January 2022.

Mandatory compliance will begin on July 21, 2025.

Food and FSMA Implementation Costs.

Food Packaging and PFAS.

While the FDA has authorized certain per and polyfluoroalkyl substances ("PFAS") for use in specific food contact applications, a growing number of states have passed legislation or issued policies restricting food contact articles with intentionally added PFAS, such as certain single-use food packaging and foodware items.

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As more states impose similar restrictions, it is possible that additional states in which we operate will also implement bans on PFAS.

FSMA directed an historic shift at FDA from the agency reacting to and solving problems in the food supply chain to preventing contamination of food before it occurs.

FSMA accomplished this goal by overhauling FDA’s current food safety program to require all actors in the food supply chain to expand their safety programs and record keeping processes.

FSMA’s continued implementation, such as the rule on Additional Traceability Records for Certain Foods , and FDA’s own development in understanding effective ways to enforce FSMA provisions could delay the supply of certain products, result in certain products being unavailable to us for sale, see an increase in price of certain products, and/or increase the expenditure of company resources to ensure compliance (e.g., technology, consultants, employees, etc.).

As a retailer of private label cosmetic products, we are subject to new registration and listing requirements, adverse event reporting obligations, labeling rules, enforcement authority, and GMP requirements under MoCRA.

Our failure to comply with these requirements could result in enforcement actions, such as recalls, administrative detentions, or injunctions that may disrupt the promotion and sale of these products, significantly harm our brand’s reputation and image, and subject us to product recalls or follow-on consumer class action litigation.

Ecommerce Platform and Third-Party Risks.

Ecommerce Platform.

Our online order ecommerce platform is subject to the same laws and regulations as our retail operations.

Product statements made on our website must be in accordance with labeling requirements.

Third-Party Risks.

As is common in our industry, we rely on our suppliers and contract manufacturers to ensure that the products they manufacture and sell to us comply with all applicable regulatory and legal requirements.

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For example, changes taking place in the United States associated with a new federal administration, as well as changes in legal standards, may introduce uncertainties with respect to our current and future operations.

It is possible that new laws, regulations or executive orders may be enacted or enforced differently than they were before, which may expose us to additional uncertainty and require the

expenditure of additional resources to ensure that we are able to comply.

It is possible that new laws, regulations or executive orders may be enacted or enforced differently than they were before, which may expose us to additional uncertainty and require the expenditure of additional resources to ensure that we are able to comply.

Such actions could also adversely restrict our business and operations.

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We are subject to laws and regulations more generally applicable to retailers, including those related to labor and employment, taxation, zoning and land use, environmental protection, workplace safety, public health, community right-to-know, data privacy, waste diversion and hazardous waste disposal, packaging labels and content, consumer protection and alcoholic beverage sales, as well as other voluntary safety protocols.

Our stores are subject to unscheduled inspections on a regular basis, which, if violations are found, could result in the assessment of fines, suspension of one or more needed licenses and, in the case of repeated “critical” violations, closure of the store until a re-inspection demonstrates that we have remediated the problem.

If violations are found, it could result in the assessment of fines, suspension of one or more needed licenses and, in the case of repeated “critical” violations, closure of the store until a re-inspection demonstrates that we have remediated the problem.

Further, our new store openings could be delayed or prevented, or our existing stores could be impacted by difficulties or failures in our ability to obtain or maintain required permits, approvals or licenses.

In addition, we are subject to environmental laws pursuant to which we could be held responsible for all of the costs or liabilities relating to any contamination at our or our predecessors’ past or present facilities and at third-party waste disposal sites, regardless of our knowledge of, or responsibility for, such contamination, and such costs may exceed our environmental liability insurance coverage.

In addition, we are subject to federal, state and local environmental laws, including those pursuant to which we could be held responsible for all of the costs or liabilities relating to any contamination at our or our

predecessors’ past or present facilities and at third-party waste disposal sites, regardless of our knowledge of, or responsibility for, such contamination, and such costs may exceed our environmental liability insurance coverage.

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There can be no assurance that our intellectual property rights can be successfully asserted against such third parties or will not be invalidated, circumvented or challenged.

Asserting or defending our intellectual property rights could be time consuming and costly and could distract management’s attention and

Asserting or defending our intellectual property rights could be time consuming and costly and could distract management’s attention and resources.

If we are unable to prevent our competitors from using names, logos and domain names similar to ours, consumer confusion could result, the perception of our brand and products could be negatively affected, and our sales and profitability could suffer as a result.

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Accounting principles generally accepted in the United States and related accounting pronouncements, implementation guidelines, and interpretations for many aspects of our business, such as accounting for leases, inventories, goodwill and intangible assets, store closures, insurance, income taxes, share-based compensation and accounting for mergers and acquisitions and other special items, are complex and involve subjective judgments.

Changes in these rules or their interpretation may necessitate changes to our financial statement presentation and significantly change or add significant volatility to our reported earnings without a comparable underlying change in cash flow from operations.

underlying change in cash flow from operations.

As a result, changes in accounting standards may materially impact our reported financial condition and results of operations.

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In the past, the FDA has expressed concerns regarding summarized health and nutrition-related information that it (i) does not, in the FDA’s view, accurately present such information, (ii) diverts a consumer’s attention and focus from FDA-required nutrition labeling and information or (iii) impermissibly promotes drug-type disease-related benefits.

If our team members

or third parties we engage to provide this information do not act in accordance with regulatory requirements, we may become subject to penalties or litigation that could have a material adverse effect on our business.

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

Increasingly, investors, customers, government agencies, non-governmental organizations, team members, communities and other stakeholders are focusing on environmental, social and governance ("ESG") matters and related disclosures.

Many of these stakeholders evaluate and measure the performance of companies based on a variety of ESG metrics.

As a fresh, natural and organic specialty retailer, we believe that many stakeholders hold us to higher standards with respect to ESG matters.

As a result, we disclose certain ESG-related metrics, initiatives and goals in our SEC filings and other public disclosures.

Execution against these ESG initiatives may be costly, and we may be unable to achieve our goals due to factors outside of our control.

If our ESG-related reporting is incomplete or inaccurate or fails to comply with regulatory requirements, or if we fail to achieve significant progress with respect to our ESG goals on a timely basis, or at all, our business, financial performance, growth and reputation with our investors, customers and other stakeholders could be adversely affected.

In addition, there also exists certain “anti-ESG” sentiment among some individuals and government institutions, and we may also face scrutiny and reputational harm from these parties regarding our ESG initiatives or goals.

If our team members or third parties we engage to provide this information do not act in accordance with regulatory requirements, we may become subject to penalties or litigation that could have a material adverse effect on our business.

Our business and reputation may be adversely impacted by evolving sustainability matters.

As a fresh, natural and organic specialty retailer, we believe that many stakeholders hold us to higher standards with respect to sustainability matters.

As a result, we disclose certain sustainability-related metrics, initiatives and goals in our SEC filings and other public disclosures.

Execution against these initiatives may be costly, and we may be unable to achieve our goals due to factors outside of our control.

If our sustainability-related reporting is incomplete or inaccurate or fails to comply with regulatory requirements, or if we fail to achieve significant progress with respect to our goals on a timely basis, or at all, our business, financial performance, growth and reputation with our investors, customers and other stakeholders could be adversely affected.

Common Stock Ownership Risks

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There is no guarantee that our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

The trading price of our common stock may be volatile and subject to wide price fluctuations in response to various factors, many of which are beyond our control.

If our operating results or outlook fall below the

expectations of stock market analysts and investors, the market price of our common stock could decline substantially.

In addition, the trading price of our common stock may be volatile and subject to wide price fluctuations in response to various factors, many of which are beyond our control.

Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies.

These fluctuations often have been unrelated or disproportionate to the operating performance of those companies.

These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the price or liquidity of our common stock.

In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock.

If any of our stockholders were to bring a lawsuit against us, we could incur substantial costs defending the lawsuit or paying for settlements or damages.

In addition, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock.

Any current or future stockholder suits against us could cause us to incur substantial costs defending the lawsuit or paying for settlements or damages.

Such a lawsuit could also divert the time and attention of our management.

Anti-takeover provisions could impair a takeover attempt and adversely affect existing stockholders.

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These include, without limitation, the following provisions:

• a classified board of directors (referred to as the “Board”) whose members serve staggered three-year terms;

• a classified board of directors (referred to as the “Board”) whose members serve staggered three-year terms until our classified board structure is fully phased out at our 2028 annual meeting of stockholders pursuant to a measure adopted by our stockholders at our 2025 annual meeting of stockholders;

• “blank check” preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation, dividend, and other rights superior to our common stock;

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In addition, our Credit Agreement contains covenants that we must satisfy in order to pay cash dividends.

Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment.

Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any

return on their investment.

As a result, investors seeking cash dividends should not purchase our common stock.

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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