What changed in this filing

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Item 1A. Risk Factors

2021-03-26 compared with 2020-03-31 · 201 added, 187 removed, 144 unchanged (73% of the section changed)

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See PART I “Cautionary Statement Regarding Forward-Looking Information” at the beginning of this Annual Report on Form 10-K.

The COVID-19 pandemic may further adversely affect our operations.

Our operations and the markets in which we operate, procure merchandise and raise capital are currently experiencing significant disruption and financial market volatility associated with an outbreak of a novel strain of coronavirus (“COVID-19”).

Our risk factors are categorized as follows:

Operational and Strategic Risks, Compliance and Litigation Risks, Human Capital Risks, Financial and Liquidity Risks and Risks Related to the Ownership of our Common Stock.

Operational and Strategic Risks

The COVID-19 pandemic has adversely impacted, and may continue to adversely impact, our business and our results of operations.

Our operations and the markets in which we operate, procure merchandise and raise capital are continuing to experience significant disruption and financial market volatility associated with the outbreak of a novel strain of coronavirus (“COVID-19”).

The World Health Organization has declared COVID‑19 a pandemic.

Government has taken unprecedented measures to control the virus’ spread and to provide stimulus as an offsetting measure to quickly deteriorating economic conditions and increasing unemployment.

Many businesses, schools, and other institutions have closed to further the practice of “social distancing” as a method to slow the outbreak.

While our supply chain has not experienced significant disruption, our operations have been significantly impacted by the temporary closure of our brick-and-mortar stores effective March 19, 2020 to April 2, 2020 and reduced foot traffic and sales prior to such time.

As guidance and mandates from governments and health officials continue to evolve, closures to some, or all, of our operations will need to extend beyond the announced closure period.

Our stock price has significantly declined, as have the stock prices of our peer companies.

Government, as well as state and local governments, have taken unprecedented measures to control the spread of COVID-19 and to provide stimulus as a mitigating measure to deteriorating economic conditions and increasing unemployment.

Many businesses, schools, and other institutions have closed, or adjusted operations, to further the practice of “social distancing” as a method to slow the outbreak.

Our business and results of operations were significantly impacted by the temporary closure of our physical stores effective March 19, 2020.

Beginning in late April 2020, we began reopening stores in accordance with applicable health guidelines, and by the end of the second quarter of fiscal 2020, all of our stores were reopened.

Both before the closure and since reopening, we have experienced reduced foot traffic in our physical stores, while traffic through our e-commerce platform has increased.

As guidance and mandates from governments and public health officials continue to evolve, closures to some, or all, of our store and other operations may reoccur.

In addition, our stock price and the stock prices of our peer companies have been volatile.

The extent of the impact of the COVID‑19 pandemic on our operational and financial performance will depend on future developments, including, but not limited to:

the duration and spread of the outbreak;

the duration and spread of the outbreak in the areas in which we operate and whether there are additional periods of increases or spikes in the number of such cases in future periods;

mitigating efforts deployed by government agencies and the public at large;

the general perception of those mitigating efforts where we operate, procure merchandise and raise capi tal .

Should the spread of COVID-19 continue to cause financial market volatility and/or adverse changes in economic conditions and consumer spending or cause periods of temporary closures of our operations to extend beyond the announced closure period or cause increased disruption to our supply chain and distribution processes, our costs may increase, our sales and gross profit may continue to decline and our stock price may further decrease, any of which could negatively impact our results of operations, cash flows, and financial condition.

Economic conditions and unemployment rates may adversely affect consumer spending and may significantly harm our business.

the development, pace of distribution, and effectiveness of vaccines and therapeutic treatments;

the general perception of those mitigating efforts where we operate, procure merchandise and raise capital.

Should the COVID-19 pandemic lead to further temporary closures of our physical stores;

financial market volatility;

adverse changes in economic conditions;

adverse changes in consumer spending;

increased operational risks;

and/or disruptions to our supply chain and distribution processes, our costs may increase, our sales and gross profit may decline and our stock price may decrease, any of which could negatively impact our results of operations, cash flows, and financial condition.

Since our physical stores have reopened to our customers, our customers and store employees are exposed to certain safety risks.

While we have taken measures to control these risks, the unpredictable nature of COVID-19 may result in unexpected outcomes.

For example, if the established protocols cease to be effective, or are not followed, the health and safety of our employees and customers could be at risk.

A future outbreak in our stores, distribution center, or corporate headquarters could result in temporary or sustained workforce shortages or store or facility closures.

Inadequate response by us, perceived or otherwise, could impact our costs, our reputation, and/or our ability to recruit a qualified workforce.

An increase in the cost, or a disruption in the flow, of imported goods may decrease our sales and profits.

We rely on imported goods to sell in our stores.

Substantially all of our footwear product is manufactured overseas, including the merchandise we import directly from overseas manufacturers and the merchandise we purchase from domestic vendors.

Our primary footwear manufacturers are located in China.

Currently, most retailers, including us, are experiencing some form of disruption in their supply chains involving goods imported from Asian countries.

To date, such disruption has not been material to us, however, should the disruption continue for an extended period, and there is a possibility this disruption may continue throughout fiscal 2021, it may eventually increase the cost of the goods we purchase and decrease our sales and profits.

If imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet our demands.

Products from alternative sources may be of lesser quality and more expensive than those we currently import.

Other risks associated with our use of imported goods include:

disruptions in the flow of imported goods because of factors such as electricity or raw material shortages, work stoppages, strikes, political unrest, pandemics and natural disasters;

tariffs, import duties, import quotas, anti-dumping duties, and other trade sanctions;

modifications to international trade policy and/or existing trade agreements and other changes affecting United States trade relations with other countries;

problems with oceanic shipping, including shipping container shortages and piracy;

port congestion at arrival ports causing delays;

additional oceanic shipping costs to reach non-congested ports;

inland transit costs and delays resulting from port congestion;

economic crises and international disputes;

currency exchange rate fluctuations;

increases in the cost of purchasing or shipping foreign merchandise resulting from the failure to maintain normal trade relations with source countries;

increases in shipping rates imposed by the trans-Pacific shipping cartel;

compliance with the laws and regulations, and changes to such laws and regulations, in the United States and the countries where our manufacturers are located, including but not limited to requirements relating to shipping security, product safety testing, environmental requirements and anti-corruption laws.

Adverse impacts on consumer spending may significantly harm our business.

The success of our business depends to a significant extent upon the level of consumer spending.

A number of factors may affect the level of consumer spending on merchandise that we offer, including, among other things:

general economic, industry and weather conditions;

general economic and industry conditions;

unemployment trends and salaries and wage rates;

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tax rates, policies and timing and amounts of tax refunds;

war, terrorism, other hostilities and security concerns.

natural disasters, changing weather patterns and catastrophic events;

war, terrorism, civil unrest, other hostilities and security concerns.

The merchandise we sell generally consists of discretionary items.

Adverse economic conditions and unemployment rates, and any related decrease in consumer confidence and spending may result in reduced consumer demand for discretionary items.

Any decrease in consumer demand could reduce traffic in our stores, limit the prices we can charge for our products and force us to take inventory markdowns, which could have a material adverse effect on our business, results of operations and financial condition.

Reduced demand may also require increased selling and promotional expenses.

Reduced demand and increased competition could increase the need to close underperforming stores, which could result in higher than anticipated closing costs.

Reduced consumer demand could result in reduced traffic in our physical stores and to our e-commerce platform;

a limit to the prices we can charge for our merchandise;

inventory markdowns;

increased selling and promotional expenses;

and the need to close underperforming stores, which could result in higher than anticipated closing costs.

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

We face significant competition in our markets, and we may be unable to compete favorably.

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This competition could adversely affect our results of operations and financial condition in the future.

Failure to successfully manage and execute our marketing initiatives could have a negative impact on our business .

Our success and growth are partially dependent on generating customer traffic in order to gain sales momentum in our stores and drive traffic to our website.

Successful marketing efforts require the ability to reach customers through their desired mode of communication, utilizing various media outlets.

Media placement decisions are generally made months in advance of the scheduled release date.

Our inability to accurately predict our customers’ preferences, to utilize their desired mode of communication, or to ensure availability of advertised products could adversely affect our business and results of operations.

In addition, our competitors may spend more on marketing or use different marketing approaches, which could provide them with a competitive advantage.

Our failure to identify fashion trends could result in lower sales, higher markdowns and lower gross profits.

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Stagnating consumer preferences could also result in lower sales and would require us to take higher markdowns to reduce excess inventories.

Our failure to effectively manage our real estate portfoli o may negatively impact our results of operations.

Failure to successfully manage and execute our marketing initiatives could have a negative impact on our business .

Our success and growth are partially dependent on generating customer traffic in order to gain sales momentum in our physical stores and drive traffic to our e-commerce platform.

Successful marketing efforts require the ability to reach customers through their desired mode of communication, utilizing various media outlets.

Media placement decisions are generally made months in advance of the scheduled release date.

In addition, our competitors may spend more on marketing or use different marketing approaches, which could provide them with a competitive advantage.

Our failure to effectively manage our real estate portfolio may negatively impact our results of operations.

Effective management of our real estate portfolio is critical to our multi-channel strategy.

All of our stores are subject to leases and, as such, the effective evaluation of the range of considerations that may influence the success of our long-term real estate strategy is essential.

All of our stores are subject to leases and are primarily located in open-air shopping centers.

The effective evaluation of the range of considerations that may influence the success of our long-term real estate strategy is essential.

Such considerations include, but are not limited to:

changing patterns of customer behavior from brick-and-mortar store locations to e-commerce shopping in the context of an evolving multi-channel retail environment;

changing patterns of customer behavior from physical store locations to e-commerce shopping in the context of an evolving multi-channel retail environment;

changing patterns of customer behavior between mall shopping centers and open-air shopping centers;

the appropriate number of stores in our portfolio;

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the local competition in and around our stores;

the primary lease term of each store and occupancy cost of each store relative to market rents.

and the primary lease term of each store and occupancy cost of each store relative to market rents.

If we fail to effectively evaluate these factors or negotiate appropriate terms or if unforeseen changes arise, the consequences could include, for example:

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These consequences could have a material adverse effect on our profitability, cash flows and liquidity.

The financial impact of exiting a leased location can vary greatly depending on, among other factors, the terms of the lease, the condition of the local real estate market, demand for the specific property and our relationship with the landlord, and it is difficult for us to influence some of these factors.

In addition to rent, we could still be responsible for the maintenance, taxes, insurance and common area maintenance (“CAM”) charges for vacant properties until the lease commitment expires or is terminated.

Natural disasters, other public health crises, political crises, and other catastrophic events or other events outside of our control may damage our facilities or the facilities of third parties on which we depend and could impact our supply chain and consumer spending.

Our facilities, including our distribution center, our corporate headquarters and our retail stores, or the facilities of our third-party vendors and service providers could suffer if affected by:

natural disaster, such as fires, earthquakes, explosions, hurricanes, power shortages or outages, floods, monsoons, ice storms or tornadoes;

other public health crises such as pandemics and epidemics;

political crises such as terrorism, war, political instability or other conflict;

other events outside of our control,

Disasters occurring at our distribution center, our corporate headquarters or our retail stores, or impacting the infrastructure of a key third-party vendor or service provider, also could result in us being unable to deliver products to our stores for a prolonged period and could impact our reputation and our customers’ perception of our brand.

In the event of a severe disruption resulting from such events, we have contingency plans and employ crisis management to respond and recover operations.

Despite these measures, if such an occurrence were to occur, our results of operations and financial condition could be materially adversely affected.

Moreover, these types of events could result in economic instability and could impact consumer preferences or spending priorities in the impacted regions or, depending upon the severity, globally, which could adversely impact our results of operations.

A failure to increase sales at our existing st ores may adversely affect our stock price and affect our results of operations.

We locate our stores primarily in open-air shopping centers where we believe our customers and potential customers shop.

The success of an individual store can depend on favorable placement within a given open-air shopping center and the volume of traffic generated by the other destination retailers and the anchor stores in the open-air shopping centers where our stores are located.

We cannot control the development of alternative shopping destinations near our existing stores or the availability or cost of real estate within existing or new shopping destinations.

If one or more of the destination retailers or anchor stores located in the open-air shopping centers where our stores are located close or leave, or if there is significant deterioration of the surrounding areas in which our stores are located, our business may be adversely affected.

In addition, if our store locations fail to attract sufficient customer traffic or we are unable to locate replacement locations on terms acceptable to us, our business could suffer.

Various risks associated with our e-commerce platform may adversely affect our business and results of operations.

E-commerce has been a rapidly growing sales channel and an increasing source of competition in the retail industry.

We sell shoes and related accessories through our website at www.shoecarnival.com and mobile app.

We fulfill substantially all e-commerce orders from our store locations and from our distribution center.

The percentage of our sales through our e-commerce platform grew substantially in fiscal 2020 and may continue to grow.

If we are unable to maintain recent market share gains in our e-commerce sales or continue to grow our e-commerce sales, our sales, comparable store sales and gross profit may decline, and our stock price may decrease, any of which could negatively impact our results of operations, cash flows, and financial condition.

Our e-commerce operations are subject to numerous other risks that could have an impact on our results of operations, including:

unanticipated operating problems;

reliance on third-party computer hardware, software and service providers;

the need to continually invest in technology and security;

our ability to hire, retain and train personnel to conduct our e-commerce operations;

diversion of sales from our physical stores;

our ability to manage any upgrades or other technological changes;

our ability to provide customer-facing technology systems, including mobile technology solutions, that function reliably and provide a convenient and consistent experience for our customers;

exposure to potential liability for online content;

risks related to the failure of the computer systems that operate our e-commerce platform and the related support systems, including computer viruses, telecommunication failures and cyberattacks and break-ins and similar disruptions;

security risks related to our electronic processing and transmission of confidential customer information.

Any significant interruptions in the operations of our third-party providers, over which we have no control, could have a material adverse effect on our e-commerce business.

Any breach involving our customer information could materially harm our reputation or result in liability including, but not limited to, fines, penalties and costs of litigation, any of which could have a material adverse effect on our operating results, financial condition and cash flows.

A failure to increase sales at our existing stores may adversely affect our stock price and affect our results of operations.

A number of factors have historically affected, and will continue to affect, our comparable store sales results, including :

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our ability to execute our business strategy effectively.

In addition, consumers are increasingly using e-commerce retailers for their fashion purchases, shifting sales away from brick-and-mortar stores.

This shift in shopping preference has resulted, and may continue to result, in decreased traffic in our physical stores, which could reduce sales at our physical stores and, in turn, negatively affect our business and financial results.

Our comparable store sales results have fluctuated in the past, and we believe such fluctuations may continue.

The unpredictability of our comparable store sales may cause our revenue and results of operations to vary from quarter to quarter, and an unanticipated decline in revenues or operating income may cause our stock price to fluctuate significantly.

Emerging technologies may create disruption to the retail industry.

New and emerging technology may enable new approaches or choices for how our customers procure goods and services and pay for those goods and services.

We may be unable to quickly adapt to rapid change resulting from artificial intelligence, blockchain, Internet of Things (IoT), including voice and smart home devices, and other advanced technologies that may result in changes to our supply chain, distribution channels, and point-of-sale capabilities.

Members in our Shoe Perks customer loyalty program account for a significant portion of our sales, and any material decline in sales from our Shoe Perks members could have an adverse impact on our results of operations.

We believe our Shoe Perks rewards program provides our customers with a heightened shopping experience, which includes exclusive offers and personalized messaging.

Rewards are earned by making purchases either in-store or online and through participating in other point earning opportunities that facilitate engagement with our brand.

Rewards are earned by making purchases and participating in other point earning opportunities that facilitate engagement with our brand.

We remain highly focused on expanding our Shoe Perks enrollment.

In fiscal 2019, we added 2.4 million new members, and purchases from Shoe Perks members were 70% of comparable net sales.

Shoe Perks members on average spent 19% more per transaction than non-members in fiscal 2019.

If our Shoe Perks members do not continue to shop with us, our sales may be adversely affected, which could have an adverse impact on our results of operations.

We would be adversely affected if our information technology systems fail to operate effectively, are disrupted or are compromised.

We rely on our existing information technology systems in operating and monitoring major aspects of our business, including sales, warehousing, distribution, purchasing, inventory control, merchandise planning and replenishment, point-of-sale support and financial systems.

We regularly make investments to upgrade, enhance or replace these systems and are currently making investments to upgrade our OMS, TMS and WMS systems, as well as leverage new technologies to support our operational strategies.

Any delays or difficulties transitioning to these new systems or integrating them with current systems in an orderly and timely fashion could have a material adverse effect on our operational results, financial position and cash flows.

The reliability and capacity of our information technology systems, and in particular our distribution technology operations, are critical to our continued operations.

We currently operate a single, 410,000 square foot distribution center in Evansville, Indiana.

Virtually all merchandise received by our stores is and will be shipped through our distribution center.

We fulfill our e-commerce orders from our store locations and our distribution center.

Our corporate computer network is essential to our distribution process.

Despite our precautionary efforts, our information technology systems are vulnerable from time to time to dama ge or interruption from, among other things, natural or man-made disasters, technical malfunctions, inadequate systems capacity, power outages or terrorist attack, computer viruses and security breaches, which may require significant investment to fix or r eplace.

If our distribution center is shut down for any reason, if our information technology systems do not operate effectively, or if we are the target of attacks or security breaches, we may suffer the loss of critical data, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores, our ability to operate our e-commerce site and mobile app may be impacted, and we could experience other interruptions or delays to our operations.

Our insurance only covers costs relating to specified, limited matters such as a shutdown due to fire and windstorms, as well as certain cyber-security incidents, but does not cover other events such as acts of war or terrorist attacks.

Even in the event of a shutdown due to covered matters, our insurance may not be sufficient, or the insurance proceeds may not be paid to us in a timely fashion.

Shutdowns or information technology disruptions could have an adverse effect on our operating and financial performance.

Failure to protect the integrity and security of individually identifiable data of our customers and employees could expose us to litigation and damage our reputation.

We receive and maintain certain personal, sensitive and confidential information about our customers, vendors and employees.

The collection and use of this information are regulated at the international, federal and state levels, and are subject to certain contractual restrictions in third-party contracts.

Non-compliance with these regulations and contractual restrictions may subject us to fines, penalties, restrictions and expulsion from credit card acceptance programs and civil liability.

Although we have implemented processes to collect and protect the integrity and security of this personal information, there can be no assurance that this information will not be obtained by unauthorized persons, or collected or used inappropriately, including as a result of cyber-security breaches, acts of vandalism, computer viruses, credit card fraud or phishing.

Advanced cyber-security threats are persistent and continue to evolve, making them increasingly difficult to identify and prevent.

If our security and information systems or the systems of our employees or external business associates are compromised or our employees or external business associates fail to comply with these laws and regulations and this information is obtained by unauthorized persons, or collected or used inappropriately, our reputation, as well as our operations and financial results, could be negatively affected and litigation or regulatory action against us or the imposition of costs, fines or other penalties could also occur.

As privacy and information security laws and regulations change, we may incur additional costs to remain in compliance.

We outsource certain business processes to third-party vendors and have certain business relationships that subject us to risks, including disruptions in business and increased costs.

We rely on third-party suppliers for our merchandise and outsource some of our business processes to third-party vendors.

Our relationships with these business partners expose us to risks, including disruptions in our business and increased costs.

In addition, other matters involving our business partners could have an adverse effect on our business and financial results.

These include, but are not limited to:

changes in the public’s perception of the reputation and brand of the business partner as a result of matters such as its labor and wage standards, business practices or marketing campaigns;

our inability to properly manage a business partner;

any data losses or information security lapses by a business partner that results in the compromise of personal information or the improper use or disclosure of sensitive information;

any misconduct by a business partner involving matters such as fraud or other improper or unethical activities conducted by the business partner or its non-compliance with our policies and procedures or with laws and regulations, including laws and regulations regarding the use and safeguarding of information, labor practices, environmental, health or safety matters and lobbying or similar activities.

We make a diligent effort to ensure that all providers of these outsourced services are observing proper internal control practices;

however, there are no guarantees that failures will not occur.

Failure of our business partners to provide adequate services or our inability to arrange for alternative providers on favorable terms in a timely manner could disrupt our business, increase our costs or otherwise adversely affect our business and our financial results.

Failure to maintain positive brand perception and recognition could have a negative impact on our business.

Maintaining a good reputation is critical to our business.

In recent years, there has been a marked increase in the use of social media platforms, including blogs, chat platforms, social media websites and other fo rms of internet-based communications that allow individuals access to a broad audience of consumers and other persons.

The rising popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information d issemination.

If we are unable to quickly and effectively respond to the dissemination of negative information about us via social media or any other incidents negatively impacting our reputation and brand, we may suffer declines in customer loyalty and tr affic and we may experience vendor relationship issues and other issues, regardless of the information’s accuracy, all of which could negatively affect our financial results.

In addition, we frequently use social media to communicate with customers and th e public in general.

Failure to use social media effectively could negatively impact our brand value and revenues.

We will require significant funds to implement our business strategy and meet our other liquidity needs We may not generate sufficient cash flow from operations or obtain sufficient borrowings under our existing credit facility to finance our business strategy and meet our other liquidity needs.

In fiscal 2020, capital expenditures are expected to range from $15 to $20 million.

Our actual costs may be greater than anticipated;

however, the resources allocated to projects requiring capital expenditures are subject to near-term changes depending on the impacts associated with the COVID-19 pandemic.

We also require working capital to support inventory for our existing stores.

Failure to generate or raise sufficient funds may require us to modify, delay or abandon some of our future growth or expenditure plans.

We utilize our existing credit facility to issue merchandise and special purpose standby letters of credit as well as to fund working capital requirements, as needed.

Significant decreases in cash flow from operations could result in our borrowing under the credit facility to fund operational needs.

If we borrow funds under our credit facility and interest rates materially increase from present levels, our results could be adversely affected.

Continued financial market volatility could have an adverse effect on the sources and costs of financing available to us.

The capital and credit markets have recently experienced, and may continue to experience, volatility and disruption, which could have the following impacts, among other things:

make renewing our existing credit facility on similar terms, or at all, more difficult;

make exercising the accordion feature within our credit facility more difficult, or not possible;

make obtaining other sources of debt more difficult;

increasing our borrowing costs or limiting other potential sources of financing available to us.

Various risks associated with our e-commerce business may adversely affect our business and results of operations.

Digital commerce has been a rapidly growing sales channel, particularly with younger consumers, and an increasing source of competition in the retail industry.

We sell shoes and related accessories through our website at www.shoecarnival.com.

We fulfill e-commerce orders from our store locations and from our distribution center.

We anticipate that the percentage of our sales through our e-commerce site will continue to grow and thus the risks associated with these operations could have a material impact on our overall operations.

However, our e-commerce operations may not achieve growing sales and profitability.

Our e-commerce operations are subject to numerous risks that could have an impact on our results of operations, including:

unanticipated operating problems;

reliance on third-party computer hardware, software and service providers;

the need to invest in additional computer systems;

hiring, retaining and training personnel to conduct our e-commerce operations;

diversion of sales from our stores;

our ability to manage any upgrades or other technological changes;

our ability to provide customer-facing technology systems, including mobile technology solutions, that function reliably and provide a convenient and consistent experience for our customers;

exposure to potential liability for online content;

risks related to the failure of the computer systems that operate our e-commerce site and its related support systems, including computer viruses, telecommunication failures and cyber-attacks and break-ins and similar disruptions;

security risks related to our electronic processing and transmission of confidential customer information.

Any significant interruptions in the operations of our third-party providers, over which we have no control, could have a material adverse effect on our e-commerce bus iness.

An increase in the cost or a disruption in the flow of imported goods may decrease our sales and profits.

We rely on imported goods to sell in our stores.

Substantially all of our footwear product is manufactured overseas, including the merchandise we import directly from overseas manufacturers and the merchandise we purchase from domestic vendors.

Our primary footwear manufacturers are located in China.

A disruption in the flow of imported merchandise or an increase in the cost of those goods may decrease our sales and profits.

If imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet our demands.

Products from alternative sources may be of lesser quality and more expensive than those we currently import.

Other risks associated with our use of imported goods include:

disruptions in the flow of imported goods because of factors such as electricity or raw material shortages, work stoppages, strikes, political unrest, pandemics and natural disasters;

tariffs, import duties, import quotas, anti-dumping duties, and other trade sanctions;

modifications to international trade policy and/or existing trade agreements and other changes affecting United States trade relations with other countries;

problems with oceanic shipping, including shipping container shortages and piracy;

port congestion at arrival ports causing delays;

additional oceanic shipping costs to reach non-congested ports;

inland transit costs and delays resulting from port congestion;

economic crises and international disputes;

currency exchange rate fluctuations;

increases in the cost of purchasing or shipping foreign merchandise resulting from the failure to maintain normal trade relations with source countries;

increases in shipping rates imposed by the trans-Pacific shipping cartel;

We may not be able to successfully execute our growth strategy, which could have a material adverse effect on our business, financial condition and results of operations.

As part of our growth strategy, we intend to continue to invest in our multi-channel initiatives, which will require substantial investment in technology.

We expect to open a limited number of new stores in fiscal 2020.

However, we may not be able to open all of the new stores contemplated by our growth strategy, and the new stores that we open may not be as profitable as existing stores.

The complexity of our operations and management responsibilities will increase as we execute our growth strategy.

We intend to continue to invest in our multi-channel initiatives, which requires substantial investment in technology.

Our growth strategy requires that we continue to expand and improve our operating and financial systems and expand, train and manage our employee base.

In addition, as we create more opportunities to connect with our customers through our multi-channel initiatives and as we open new stores, we may be unable to hire a sufficient number of qualified personnel or successfully integrate the multi-channel initiatives or new stores into our business.

In addition, as we create more opportunities to connect with our customers through our multi-channel initiatives and as we adjust the number of our physical stores, we may be unable to hire a sufficient number of qualified personnel or successfully integrate the multi-channel initiatives or new stores into our business.

If we fail to successfully implement our growth strategy, our business, financial condition or results of operations could be materially adversely effected.

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our ability to provide adequate distribution to support growth;

our ability to source sufficient levels of inventory to meet the needs of new stores and for our Ship From Store, Shoes 2U and Buy Online Pick Up In Stores services;

our ability to resolve downtime or technical issues related to our e-commerce site, our mobile app, our third-party order management and fulfillment systems, and all other related systems that support our multi-channel strategy;

our ability to source sufficient levels of inventory;

our ability to resolve downtime or technical issues related to our e-commerce platform, our order management and fulfillment systems, and all other related systems that support our multi-channel strategy;

our ability to execute multi-channel advertising and marketing campaigns to effectively communicate our message to our customers and our employees;

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Name brand suppliers also provide us with cooperative advertising and visual merchandising funds.

Certain key suppliers’ business models are changing and such changes include, but are not limited to, increased direct-to-consumer initiatives, changes in planned product allocations, and reductions in the number of retailers with which they are choosing to do business.

A loss of any of our key suppliers in certain product categories or our inability to obtain name brand or other merchandise from suppliers at competitive prices could have a material adverse effect on our business.

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

Our quarterly operating results will fluctuate due to seasonality, weather conditions and other factors.

Natural disasters, other public health crises, political crises and other catastrophic events or other events outside of our control may damage our facilities or the facilities of third parties on which we depend and could impact our supply chain and access to customers.

Our facilities, including our distribution center, our corporate headquarters and our retail stores, and the facilities of our third-party vendors and service providers could suffer if affected by:

natural disaster, such as fires, earthquakes, explosions, hurricanes, power shortages or outages, floods, monsoons, ice storms or tornadoes;

other public health crises such as pandemics and epidemics;

political crises such as terrorism, war, political instability, civil unrest or other conflict;

other events outside of our control.

Disasters occurring at our distribution center, our corporate headquarters, our retail stores, or the infrastructure of a key third-party vendor or service provider also could result in us being unable to deliver merchandise to our stores or directly to customers for a prolonged period and could impact our reputation and our customers’ perception of our brand.

In the event of a severe disruption resulting from such events, we have contingency plans and employ crisis management to respond and recover operations.

Despite these measures, if such an occurrence were to occur, our results of operations and financial condition could be materially adversely affected.

We could be adversely affected if our information technology systems fail to operate effectively, are disrupted or are compromised.

We regularly make investments to upgrade, enhance or replace our systems as well as leverage new technologies to support our operational strategies.

Any delays or difficulties with such projects could have a material adverse effect on our operational results, financial position and cash flows.

The reliability and capacity of our information technology systems, and in particular our distribution technology operations, are critical to our continued operations.

We currently operate a single distribution center in Evansville, Indiana.

Virtually all merchandise received by our physical stores is, and will be, shipped through our distribution center.

We fulfill substantially all of our e-commerce orders from our store locations and our distribution center.

Our corporate computer network is essential to our distribution process.

Despite our precautionary efforts, our information technology systems are vulnerable from time to time to damage or interruption from, among other things, natural or man-made disasters, technical malfunctions, inadequate systems capacity, power outages, terrorist attacks, computer viruses and security breaches, which may require significant investment to fix or replace.

If our distribution center is shut down for any reason, if our information technology systems do not operate effectively, or if we are the target of attacks or security breaches, we may suffer the loss of critical data, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores, our ability to operate our e-commerce platform may be impacted, and we could experience other interruptions or delays to our operations, which could have an adverse effect on our operating and financial performance.

We outsource certain business processes to third-party vendors and have certain business relationships that subject us to risks, including disruptions to our business and increased costs.

We rely on third-party suppliers for our merchandise and outsource some of our business processes to third-party vendors.

Our relationships with these business partners expose us to risks, including disruptions in our business and increased costs.

In addition, other matters involving our business partners could have an adverse effect on our business and financial results.

These include, but are not limited to:

changes in the public’s perception of the reputation and brand of the business partner as a result of matters such as its labor and wage standards, business practices or marketing campaigns;

our inability to properly manage a business partner;

any data losses or information security lapses by a business partner that results in the compromise of personal information or the improper use or disclosure of sensitive information;

Failure to maintain positive brand perception and recognition could have a negative impact on our business.

Maintaining a good reputation is critical to our business.

In recent years, there has been a marked increase in the use of social media platforms, including blogs, chat platforms, social media websites and other forms of internet-based communications that provide access to a broad audience of consumers and other persons.

The rising popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information dissemination.

If we are unable to quickly and effectively respond to the dissemination of negative information about us via social media or any other incidents negatively impacting our reputation and brand, we may suffer declines in customer loyalty and traffic and we may experience vendor relationship issues and other issues, regardless of the information’s accuracy, all of which could negatively affect our financial results.

In addition, we frequently use social media to communicate with customers and the public in general.

Failure to use social media effectively could negatively impact our brand value and revenues.

Emerging technologies may create disruption to the retail industry.

New and emerging technology may enable new approaches or choices for how our customers procure goods and services and pay for those goods and services.

We may be unable to quickly adapt to rapid change resulting from artificial intelligence, blockchain, Internet of Things, including voice and smart home devices, and other advanced technologies that may result in changes to our supply chain, distribution channels, and point-of-sale capabilities.

Our quarterly operating results can fluctuate due to seasonality, weather conditions and other factors.

Our quarterly results of operations have fluctuated and are expected to continue to fluctuate in the future, primarily as a result of seasonal variances, weather conditions and the timing of sales and costs associated with opening new stores and closing existing stores.

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Easter, back-to-school and Christmas.

To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other parts of the year.

We expect reduced sales during the fiscal 2020 Easter season as a result of the COVID-19 pandemic.

This expected reduction and any other unanticipated decrease in demand for our products during these peak shopping seasons could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross margins and negatively affect our profitability.

To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during

other periods of the year.

Reductions in demand for our merchandise during these peak shopping seasons could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and margins and negatively affect our profitability.

Our operating results depend significantly upon the sales generated during these periods, and our quarterly results may be impacted by calendar shifts of holiday or seasonal periods.

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If our future quarterly results fail to meet the expectations of research analysts, then the market price of our common stock could decline substantially.

We are exposed to physical and financial risks related to the u ncertainty of climate change.

We are exposed to physical and financial risks related to the uncertainty of climate change.

A changing climate creates uncertainty and could result in broad changes, both physical and financial in nature, to our retail, distribution, and corporate locations.

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Such changes could impact us in a number of ways including limiting available real estate;

changing the demographics of our customer base and employees, and increasing the likelihood of capital expenditures to replace damaged infrastructure.

To the extent climate change impacts a region’s economic health, it may also impact the level of discretionary income of that region’s population and thus impact our revenues.

Customers’ shopping habits vary with weather conditions.

To the extent weather conditions are affected by climate change, our customers’ shopping habits will also change, and we may not be able to timely adapt to those changes.

Our ability to attract customers to our stores depends on the success of the open-air shopping centers where our stores are located.

We locate our stores primarily in open-air shopping centers where we believe our customers and potential customers shop.

The success of an individual store can depend on favorable placement within a given open-air shopping center and from the volume of traffic generated by the other destination retailers and the anchor stores in the open-air shopping centers where our stores are located.

We cannot control the development of alternative shopping destinations near our existing stores or the availability or cost of real estate within existing or new shopping destinations.

If our store locations fail to attract sufficient customer traffic or we are unable to locate replacement locations on terms acceptable to us, our business could suffer.

changing the demographics of our customer base and employees;

increasing the likelihood of capital expenditures to replace damaged infrastructure;

and increasing the cost of insurance.

Compliance and Litigation Risks

Failure to protect the integrity and security of individually identifiable data of our customers and employees could expose us to litigation and damage our reputation.

We receive and maintain certain personal, sensitive and confidential information about our customers, vendors and employees.

The collection and use of this information are regulated and are subject to certain contractual restrictions in third-party contracts.

Non-compliance with these regulations and contractual restrictions may subject us to fines, penalties, restrictions and expulsion from credit card acceptance programs and civil liability.

Although we have implemented processes to collect and protect the integrity and security of this personal information, there can be no assurance that this information will not be obtained by unauthorized persons, or collected or used inappropriately, including as a result of cybersecurity breaches, acts of vandalism, computer viruses, credit card fraud or phishing.

Advanced cybersecurity threats are persistent and continue to evolve, making them increasingly difficult to identify and prevent.

If our security and information systems or the systems of our employees or external business associates are compromised or our

employees or external business associates fail to comply with these laws and regulations and this information is obtained by unauthorized persons, or collected or used inappropriately, our reputation, as well as our operations and financial results, could be negatively affected and litigation or regulatory action against us or the imposition of costs, fines or other penalties could also occur.

As privacy and information security laws and regulations change, we may incur additional costs to remain in compliance.

We may not have adequate insurance coverage for all potential liabilities.

Natural risks, as well as other hazards associated with our operations, can result in personal injury, severe damage or destruction to our owned assets, leasehold improvements and inventory, and suspension of our operations.

Our insurance covers costs relating to specified, limited matters, such as events involving casualty losses and property losses due to fire and windstorms, as well as securities litigation and certain cybersecurity incidents, but does not cover other events such as acts of war or terrorist attacks.

We maintain an amount of insurance protection we believe is appropriate, but there can be no assurance that the amount of insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject.

A claim for which we are not adequately insured could have a material adverse effect on our financial condition.

Further, due to the cyclical nature of the insurance markets, we cannot provide assurance that insurance coverage will continue to be available on terms similar to those presently in place.

If our long-lived assets become impaired, we may need to record significant non-cash impairment charges.

Periodically, we review our long-lived assets for impairment whenever economic events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Significant negative industry or general economic trends, disruptions to our business and unexpected significant changes or planned changes in our use of the assets (such as store relocations or closures) have resulted, and in the future may result, in impairment charges.

Any such impairment charges, if significant, would adversely affect our financial position and results of operations.

Further, due to the cyclical nature and current hardening of the insurance markets, we cannot provide assurance that insurance coverage will continue to be available on terms similar to those presently in place.

We are subject to periodic litigation and other regulatory proceedings, which could result in the unexpected expenditure of time and resources.

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In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and will require us to devote substantial resources and executive time to defend, thereby diverting management’s attention and resources that are needed to successfully run our business.

Our failure to manage key executive succession and retention and to continue to attract qualified personnel could adversely affect our business.

Our success depends largely on the continued service of our executive management tea m.

Our business would be adversely affected if we fail to adequately plan for the succession and retention of our executive management team.

Human Capital Risks

Our failure to manage key executive succession and retention could adversely affect our business.

We recently announced planned transitions of key members of our executive management team.

Our business would be adversely affected if we fail to execute on these recently announced transitions or fail to adequately plan for the succession and retention of the other members of our executive management team.

While we have succession plans in place for members of our executive management team, and continue to review and update those plans, and we have employment agreements with certain key executive officers, these plans and agreements do not guarantee that the services of our executive officers will continue to be available to us or that we will be able to find suitable management personnel to replace departing executives on a timely basis.

Furthermore, our strategy requires us to continue to train, motivate and manage our employees and to attract, motivate and retain additional qualified managerial and merchandising personnel.

Our failure to attract and retain qualified personnel could adversely affect our business.

Our business model requires us to train, motivate and manage our employees and to attract, motivate and retain additional qualified managerial and merchandising personnel.

Our ability to control costs and meet our labor needs in a rising wage environment is subject to external factors such as unemployment levels, prevailing wage rates paid by those with whom we compete for talent, health care and minimum wage legislation, and changing demographics.

If we are unable to attract and retain quality sales associates and management, the ability to meet growth goals or to sustain expected levels of profitability may be compromised.

Perception of the overall retail industry may impact our stock price and operations.

If we are unable to attract and retain quality sales associates and management or market conditions or changes to minimum wage laws result in the need for higher wages paid to employees, our ability to meet growth goals or to sustain expected levels of profitability may be compromised and our financial condition, results of operations and cash flows may be adversely affected.

Financial and Liquidity Risks

We will require significant funds to implement our business strategy and meet our other liquidity needs.

We may not generate sufficient cash flow from operations or obtain sufficient borrowings under our existing credit facility to finance our business strategy and meet our other liquidity needs.

Failure to generate or raise sufficient funds may require us to modify, delay or abandon some of our future growth or expenditure plans.

We utilize our existing credit facility to fund our working capital, including inventory purchases, and special purpose standby letters of credit, as needed.

Significant decreases in cash flow from operations could result in our borrowing under the credit

facility to fund operational needs.

If we borrow funds under our credit facility and interest rates materially increase from present levels, our financial results could be adversely affected.

Continued financial market volatility could have an adverse effect on the sources and costs of financing available to us.

The capital and credit markets have recently experienced, and may continue to experience, volatility and disruption, which could have the following impacts, among other things:

make renewing our existing credit facility on similar terms, or at all, more difficult;

make obtaining other sources of debt more difficult;

increase our borrowing costs or limit other potential sources of financing available to us.

If our long-lived assets become impaired, we may need to record significant non-cash impairment charges.

Periodically, we review our long-lived assets for impairment whenever economic events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Any such impairment charges, if significant, would adversely affect our financial position and results of operations.

Failure to maintain effective internal control over financial reporting could result in a loss of investor confidence in our financial reports and have a material adverse effect on our stock price.

We must continue to document, test and evaluate our internal control over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual reports by management regarding the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm attesting to the effectiveness of our internal control over financial reporting.

We have expended, and expect that we will continue to expend, significant management time and resources documenting and testing our internal control over financial reporting.

If we conclude in future periods that our internal control over financial reporting is not effective, it could result in lost investor confidence in the accuracy, reliability and completeness of our financial reports.

Any such events could have a material adverse effect on our stock price.

Risks Relating to the Ownership of Our Common Stock

Perception of the overall retail industry and other macroeconomic conditions may impact our stock price and operations.

The retail industry continues to evolve and undergo structural change.

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Despite our best efforts to differentiate our business model and processes, our stock price has fluctuated as a result of perceptions of the overall retail environment and investor confidence in the retail sector.

We cannot provide any assurance that perception of the retail industry overall will not continue to impact our stock price or our ability to engage business partners on terms acceptable to us.

The volatility in our stock price could be exacerbated by macroeconomic conditions that affect the market generally or our industry in particular and could have the effect of diverting management’s attention and could materially harm our business.

We cannot provide any assurance that perception of the retail industry overall and other macroeconomic conditions will not continue to impact our stock price or our ability to engage business partners on terms acceptable to us.

Our stock price may be volatile and could decline substantially.

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the other risk factors cited in this Annual Report on Form 10-K.

The price of our common stock may decline and the value of any investment in our common stock may be reduced regardless of our performance.

In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation.

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However, we are not obligated to make any purchases under the share repurchase program and the program may be amended, suspended or discontinued at any time.

Failure to maintain effective internal control over financial reporting could result in a loss of investor confidence in our financial reports and have a material adverse effect on our stock price.

We have expended, and expect that we will continue to expend, significant management time and resources documenting and testing our internal control over financial reporting.

Any such events could have a material adverse effect on our stock price.

We are controlled by our principal shareholders.

Wayne Weaver, our Chairman of the Board of Director s, and his spouse together beneficially own approximately 23.9 % of our outstanding common stock.

Weaver’s adult son is the sole trustee of the J.

Wayne Weaver 2018 Grantor Retained Annuity Trust for Bradley Wayne Weaver, and, as a result, beneficially owns the approximately 4.7 % of our outstanding common stock held by such trust.

Wayne Weaver, our Chairman of the Board of Directors, and his spouse together beneficially own approximately 29.1% of our outstanding common stock.

Weaver’s adult daughter is the sole trustee of the J.

Wayne Weaver 2018 Grantor Retained Annuity Trust for Leigh Anne Weaver and is the sole trustee of the J.

Wayne Weaver 2019 Grantor Retained Annuity Trust for Leigh Anne Weaver, and, as a result, beneficially owns the approximately 7.1 % of our outstanding common stock held by such trusts.

Accordingly, the Weaver family is able to exert substantial influence over our manag ement and operations.

Wayne Weaver 2018 Grantor Retained Annuity Trust for Leigh Anne Weaver, the sole trustee of the J.

Wayne Weaver 2019 Grantor Retained Annuity Trust for Leigh Anne Weaver and the sole trustee of the J.

Wayne Weaver 2020 Grantor Retained Annuity Trust for Leigh Anne Weaver, and, as a result, beneficially owns approximately 6.3% of our outstanding common stock held by such trusts.

Accordingly, the Weaver family is able to exert substantial influence over our management and operations.

In addition, their interests may differ from, or be opposed to, the interests of our other shareholders, and their ownership may have the effect of delaying or preventing a change in control that may be favored by other shareholders.

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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