What changed in this filing

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Item 1A. Risk Factors

2025-03-13 compared with 2024-03-14 · 55 added, 38 removed, 310 unchanged (23% of the section changed)

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and global economic and political conditions change, the trends in discretionary consumer spending become unpredictable and discretionary consumer spending could be reduced due to uncertainties about the future.

This includes rising geopolitical tensions and U.S.

policies related to global trade and tariffs.

The deterioration of economic relations between countries, such as changes in or terminations of existing trade agreements, or the imposition of tariffs (including recent U.S.

tariffs imposed or threatened to be imposed on Canada, Mexico, and other countries, and any retaliatory actions taken by such countries) or otherwise, could impact our profitability or otherwise have an adverse effect on our business.

Economic and consumer confidence can also be affected by a variety of factors, including housing prices, unemployment rates and inflation.

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and global economies and political environment could have a material adverse impact on our results of operations and financial position.

In addition, government shutdowns or the risk of government shutdowns as well as the impact or expected impact of elections, both in the U.S.

and in other markets where we operate could have a material adverse impact on our results of operations and financial position.

In times when there is a decline in disposable income and consumer confidence, there could be a trend to consumers seeking more inexpensive or value-oriented merchandise.

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Some of our competitors are larger than we are and have substantially greater financial and marketing resources, including advanced ecommerce market capabilities.

Additionally, some of our competitors may offer more options for free and/or expedited shipping for ecommerce sales.

Additionally, some of our competitors may offer more options

for free and/or expedited shipping for ecommerce sales.

Direct competition with these and other retailers may increase significantly in the future, which could require us, among other things, to lower our prices and could result in the loss of our customers.

Current and increased competition could have a material adverse effect on our business, results of operations and financial condition.

We could incur charges due to impairment of goodwill, intangible assets and other long-term assets.

We have recorded goodwill, which is the premium paid over the fair market value of the acquired tangible and intangible assets paid in an acquisition, as part of our prior year acquisitions.

Goodwill and intangible assets, which consist of tradenames and trademarks, are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Any event that impacts our results negatively could lead to impairment of these assets which could have negative impacts on our earnings.

Long-term assets, primarily fixed assets and operating lease right-of-use assets, are also subject to testing for impairment if events or changes in circumstances indicate that the asset might be impaired.

A significant amount of judgment is involved in our impairment assessment.

If actual results fall short of our estimates and assumptions used in estimating revenue growth, future cash flows and asset fair values, we could incur further impairment charges for goodwill, intangible assets, or long-term assets, which could have an adverse effect on our results of operations.

Most of our merchandise is produced by foreign manufacturers;

therefore, the availability, quality and costs of our merchandise may be negatively affected by risks associated with international trade and other international conditions.

Most of our merchandise is produced by manufacturers around the world.

Some of these facilities are located in regions that may be affected by natural disasters, public health concerns, or emergencies, such as COVID-19 and other communicable diseases or viruses, political instability or other conditions that could cause a disruption in trade.

Trade restrictions such as increased tariffs or quotas, or both, could also increase the cost and reduce the supply of merchandise available to us.

Any reduction in merchandise available to us or any increase in its cost due to tariffs, quotas or local issues that disrupt trade could have a material adverse effect on our results of operations.

This includes costs to comply with regulatory developments regarding the use of “conflict minerals,” certain minerals originating from the Democratic Republic of Congo and adjoining countries, which may affect the sourcing and availability of raw materials used by manufacturers and subject us to increased costs associated with our products, processes or sources of our inputs.

Our business could be adversely affected by disruptions in the supply chain, such as strikes, work stoppages, or port closures.

A decrease in consumer traffic could cause our sales to be less than expected.

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A reduction in consumer traffic to our stores or websites could have a material adverse effect on our business, results of operations and financial condition.

Most of our merchandise is produced by foreign manufacturers;

therefore, the availability, quality and costs of our merchandise may be negatively affected by risks associated with international trade and other international conditions, including the implementation of increased tariffs or other restrictions placed on foreign imports.

Most of our merchandise is produced by manufacturers around the world, including China.

Also, our business could be adversely affected by disruptions in the supply chain, such as strikes, work stoppages, or port closures.

Most of our merchandise is imported and is subject to duties, indirect taxes, quotas and non-tariff trade barriers, any of which may limit the quantity of products that we may import into the U.S.

and other countries or may impact the cost of such products.

The current U.S.

presidential administration has implemented tariffs and has signaled that it may implement additional or increased tariffs, other trade restrictions, or may alter trade agreements between the U.S.

and Canada, China, the European Union and Mexico, among others.

Such actions include limiting trade and/or imposing tariffs on imports from such countries.

Tariffs have the potential to significantly raise the cost of our merchandise.

In such a case, there can be no assurance that we will be able to shift manufacturing and supply agreements to non-impacted countries to reduce the effects of tariffs.

As a result, we may suffer margin erosion or be required to raise our prices, which may result in the loss of customers, negatively impact our results of operations, or otherwise harm our business.

Our North America growth strategy depends on our ability to grow customer engagement in our current markets, which could strain our resources and cause the performance of our existing business to suffer.

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• disruption and volatility within the financial and credit markets.

If our information systems fail to function effectively, or do not scale to keep pace with our planned growth, our operations could be disrupted and our financial results could be harmed.

If our information systems, including hardware and software, do not work effectively, this could adversely impact the promptness and accuracy of our transaction processing, financial accounting and reporting and our ability to manage our business and properly forecast operating results and cash requirements.

We rely on information systems and technology in our operations and our growth plans and any material failure, inadequacy interruption, or security failure of that technology could adversely affect our ability to effectively operate and grow our business and could adversely affect our financial results.

If our information technology systems, including hardware and software, do not work effectively, this could adversely impact our ability to operate and manage our business, including the promptness and accuracy of our transaction processing, financial accounting and reporting and our ability to properly forecast operating results and cash requirements.

Additionally, we rely on third-party service providers for certain information systems functions.

If a service provider fails to provide the data quality, communications, capacity or services we require, the failure could interrupt our services and could have a material adverse effect on our business, financial condition and results of operations.

To manage the anticipated growth of our operations and personnel, we may need to continue to improve our operational and financial systems, transaction processing, procedures, and controls, and in doing so could incur substantial additional expenses that could impact our financial results.

Any failure, inadequacy, or interruption of our technology systems could harm our ability to effectively operate and grow our business and could adversely affect our financial results.

In addition, the technologies and artificial intelligence tools that we incorporate into certain aspects of our operations may not generate the intended efficiencies and may impact our business results.

Specifically artificial intelligence tools could have the potential to be deficient, inaccurate, or biased and if we fail to adopt and oversee the use of artificial intelligence in a thoughtful and strategic manner, it could harm our financial performance.

To better manage, operate and grow our business, we may need to continue to invest in and improve our information technology systems, and in doing so could incur substantial additional expenses that could impact our financial results.

In addition, remediation of any problems with our information technology systems could result in significant, unplanned expenses.

If we fail to meet the requirements to adequately maintain the privacy and security of personal data and business information, we may be subjected to adverse publicity, litigation, and significant expenses.

Information systems are susceptible to an increasing threat of continually evolving cybersecurity risks.

Similar to many other retail companies, we expect to continue to experience cyber attacks, including phishing, social engineering, and other attempts to breach, or gain unauthorized access to our systems and databases.

To date, these attacks have not had a material impact on our operations, but we cannot provide assurance that they will not have an impact in the future.

Unauthorized access, theft, use, destruction, or other compromises are becoming increasingly sophisticated and may occur through a variety of methods.

The rapid evolution and increased adoption of artificial intelligence technologies by attackers may intensify our cybersecurity risks.

If we fail to maintain or adequately maintain security systems, devices, and activity monitoring to prevent unauthorized access to our network, systems and databases containing confidential, proprietary and personally identifiable information, we may be subject to additional risk of adverse publicity, litigation or significant expense.

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We depend on cash flow from operations to fund our current operations and our growth strategy, including the payment of our operating leases, wages, store operation costs and other cash needs.

If our business does not

generate sufficient cash flow from operating activities, and sufficient funds are not otherwise available to us from borrowings under our credit facility or from other sources, we may not be able to pay our operating lease expenses, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which could have a material adverse effect on our business.

The terms of our secured credit agreement impose certain restrictions on us that may impair our ability to respond to changing business and economic conditions, which could have a significant adverse impact on our business.

Additionally, our business could suffer if our ability to acquire financing is reduced or eliminated.

We maintain a secured credit agreement with Wells Fargo Bank, N.A., which provides us with a senior secured credit facility (“credit facility”) of up to $25.0 million through December 1, 2024.

The credit facility contains various representations, warranties and restrictive covenants that, among other things and subject to specified circumstances and exceptions, restrict our ability to incur indebtedness (including guarantees), grant liens, make investments, pay dividends or distributions with respect to capital stock, make prepayments on other indebtedness, engage in mergers, dispose of certain assets or change the nature of their business.

The credit facility contains certain financial maintenance covenants that generally require us to have EBITDA on a trailing four quarter basis of not less than $9 million for the quarter ending October 28, 2023, not less than $2.5 million for the quarter ending February 3, 2024, not less than $9 million for the quarter ending May 4, 2024, not less than $12 million for the quarter ending August 3, 2024, and not less than $20 million for the quarter ending November 2, 2024 and a quick ratio of 1.25:1.0 at the end of each fiscal quarter.

These restrictions could (1) limit our ability to plan for or react to market conditions or meet capital needs or otherwise restrict our activities or business plans;

and (2) adversely affect our ability to finance our operations, strategic acquisitions, investments or other capital needs or to engage in other business activities that would be in our interest.

The credit facility contains certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and notices of certain events, maintaining insurance, and providing additional guarantees and collateral in certain circumstances.

The credit facility includes customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross-default to other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, material judgments and change of control.

Additionally, we cannot be assured that our borrowing relationship with our lenders will continue or that our lenders will remain able to support their commitments to us in the future.

If our lenders fail to do so, then we may not be able to secure alternative financing on commercially reasonable terms, or at all.

If our business does not generate

sufficient cash flow from operating activities, and sufficient funds are not otherwise available to us from borrowings under a credit facility or from other sources, we may not be able to pay our operating lease expenses, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which could have a material adverse effect on our business.

Our business could suffer with the closure or disruption of our home office or our distribution centers.

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The costs of defense and the risk of loss in connection with class action suits are greater than in single-party litigation claims.

Due to the costs of defending against such litigation, the size of judgments that may be awarded against us, and the loss of significant management time devoted to such litigation, we cannot provide assurance that such litigation will not disrupt our business or impact our financial results.

Due to the costs of defending

against such litigation, the size of judgments that may be awarded against us, and the loss of significant management time devoted to such litigation, we cannot provide assurance that such litigation will not disrupt our business or impact our financial results.

We are involved, from time to time, in litigation incidental to our business including complaints filed by investors.

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Although we have policies and procedures aimed at ensuring legal and regulatory compliance, our employees or vendors could take actions that violate these laws and regulations.

violations of such laws or regulations could have an adverse effect on our reputation, results of operations, financial condition and cash flows.

Any violations of such laws or regulations could have an adverse effect on our reputation, results of operations, financial condition and cash flows.

Furthermore, changes in the regulations, the imposition of additional regulations, or the enactment of any new legislation, particularly in the North America and International businesses, could adversely affect our results of operations or financial condition.

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A controlling shareholder would have significant influence over, and may have the ability to control, matters requiring approval by our shareholders, including the election of directors and approval of mergers, consolidations, sales of assets, recapitalizations and amendments to our articles of incorporation.

Furthermore, a controlling shareholder may take actions with which other shareholders do not agree, including actions that delay, defer or prevent a change of control of the company and that could cause the price that investors are willing to pay for the company’s stock to decline.

Increased scrutiny and changing expectations from stakeholders with respect to the Company’s ESG practices may result in additional costs or risks.

Furthermore, a controlling shareholder may take actions with which other shareholders do not agree, including actions that delay, defer or

prevent a change of control of the company and that could cause the price that investors are willing to pay for the company’s stock to decline.

Increased scrutiny and changing expectations from stakeholders with respect to ESG matters may result in additional costs or risks.

Companies across many industries are facing increasing scrutiny related to their environmental, social and governance practices.

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If our ESG practices do not meet stakeholder expectations, which continue to evolve, we may incur additional costs and our brand may be harmed.

Globally, a lack of harmonization and the rapid evolution in relation to ESG legal and regulatory reform across the jurisdictions in which we may operate may affect our future implementation of, and compliance with, ESG standards and requirements.

Standards for tracking and reporting ESG matters are relatively new, have not been formalized and continue to evolve.

Collecting, measuring, and reporting ESG information and metrics can be difficult and time consuming.

In addition, our processes and controls may not comply with evolving standards for identifying, measuring and reporting ESG metrics, including ESG-related disclosures that may be required of public companies by the SEC and other regulators, and such standards may change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in the future, and could cause us to undertake costly initiatives to satisfy such new criteria.

We could incur charges due to impairment of goodwill, intangible assets and other long-term assets.

We have recorded goodwill, which is the premium paid over the fair market value of the acquired tangible and intangible assets paid in an acquisition, as part of our prior year acquisitions.

Any event that impacts our results negatively could lead to impairment of these assets which could have negative impacts on our earnings.

A significant amount of judgment is involved in our impairment assessment.

UNRESOLV ED STAFF COMMENTS

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We have a Cybersecurity Incident Response Plan which is maintained by the Security and Compliance Team.

The Incident Response Plan establishes what people and organizations need to be engaged in the event of a significant

The Incident Response Plan establishes what people and organizations need to be engaged in the event of a significant incident.

The Incident Response Plan also provides templates for technical resolution, documentation and communication to internal stakeholders as well as insurers and governmental and other regulatory agencies.

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Like many companies, we face a number of cybersecurity risks in the day-to-day operation of our business.

Although to date these risks have not materialized into any instances or series of instances that have had a material adverse effect on our business or otherwise caused material harm to the company, we have, on occasion, experienced cybersecurity threats to our data and information systems, including phishing attacks.

Although to date these risks have not materialized into any instances or series of instances that have had a material

adverse effect on our business or otherwise caused material harm to the company, we have, on occasion, experienced cybersecurity threats to our data and information systems, including phishing attacks.

For more information about the cybersecurity risks we face, see the risk factor entitled "If we fail to meet the requirements to adequately maintain the privacy and security of personal data and business information, we may be subject to adverse publicity, litigation and significant expenses” in Item 1A Risk Factors.

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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