Zumiez Inc

Previous wording

Fiscal 2024 is the 52-week period ending February 1, 2025. Fiscal 2023 was the 53-week period ending February 3, 2024. The first six months of fiscal 2024 was the 26-week period ended August 3, 2024. The first six months of fiscal 2023 was the 26-week period ended July 29, 2023.

Current wording

Fiscal 2024 is the 52-week period ending February 1, 2025. Fiscal 2023 was the 53-week period ending February 3, 2024. The first nine months of fiscal 2024 was the 39-week period ended November 2, 2024. The first nine months of fiscal 2023 was the 39-week period ended October 28, 2023.

Previous wording

We have been, and we expect to continue to be affected by a number of factors that may cause actual results to differ from our historical results or current expectations. These factors include the impact of foreign currency rates; changes in laws, including U.S. tax law changes; fluctuations in variable costs, and changes in general economic conditions in the markets in which we operate. Additionally, we have experienced increased costs during 2023 and 2024. Our ability to raise our selling prices depends on market conditions and there may be periods during which we are unable to fully recover increases in our costs or experience an adverse impact on demand due to pricing actions. We believe higher consumer price inflation has resulted in reduced consumer confidence and consumer spending which negatively impacted our sales during fiscal 2023 and the first six months of fiscal 2024.

Current wording

We have been, and we expect to continue to be affected by a number of factors that may cause actual results to differ from our historical results or current expectations. These factors include the impact of foreign currency rates; changes in laws, including U.S. tax law changes; fluctuations in variable costs, and changes in general economic conditions in the markets in which we operate. Additionally, we have experienced increased costs during 2023 and 2024. Our ability to raise our selling prices depends on market conditions and there may be periods during which we are unable to fully recover increases in our costs or experience an adverse impact on demand due to pricing actions. We believe higher consumer price inflation has resulted in reduced consumer confidence and consumer spending which negatively impacted our sales during fiscal 2023 and the first nine months of fiscal 2024.

Previous wording

Net sales were $210.2 million for the three months ended August 3, 2024 compared to $194.4 million for the three months ended July 29, 2023, an increase of $15.8 million or 8.1%. The increase in sales was driven by a calendar shift including an additional week of back-to-school season during the second quarter worth 5.3% of the sales growth and sales increases in our North America business that were offset by unfavorable results in Europe. While overall sales trends have continued in a positive trajectory and our overall business improved, sales were still affected by continued inflationary pressures on the consumer and continued challenges in competition for the discretionary dollar. By region, North America sales increased $16.7 million or 10.4% and other international sales (which consists of Europe and Australia sales) decreased $0.9 million or 2.6% and for the three months ended August 3, 2024 compared to the three months ended July 29, 2023. Excluding the impact of changes in foreign exchange rates, North America sales increased $16.9 million or 10.6% and other international sales decreased $0.6 million or -1.7% for the three months ended August 3, 2024 compared to the three months ended July 29, 2023.

Current wording

Net sales were $222.5 million for the three months ended November 2, 2024 compared to $216.3 million for the three months ended October 28, 2023, an increase of $6.2 million or 2.9%. The increase in sales was primarily driven by comparable sales increase in North America and is partially offset by a 5.1% decrease due to the retail calendar shift which moved one higher volume back-to-school week out of the third quarter and into the second quarter. By region, North America sales increased $5.2 million or 2.9% and other international sales (which consists of Europe and Australia sales) increased $0.9 million or 2.7% and for the three months ended November 2, 2024 compared to the three months ended October 28, 2023. Excluding the impact of changes in foreign exchange rates, North America sales increased $5.3 million or 2.9% and other international sales decreased $0.1 million or -0.3% for the three months ended November 2, 2024 compared to the three months ended October 28, 2023.

Previous wording

Comparable sales increased 0.8% for the six months ended August 3, 2024, driven by an increase in dollars per transaction that was offset by a decrease in transactions. Dollars per transaction increased due to an increase in both average unit retail and units per transaction. By category, net sales were primarily driven by an increase in men's clothing, women's clothing, followed by footwear, partially offset by accessories and hardgoods.

Current wording

Comparable sales increased 7.5% for the three months ended November 2, 2024 driven by an increase in dollars per transaction and an increase in transactions. Dollars per transaction increased due to an increase in both average unit retail and units per transaction. By category, net sales were primarily driven by increases in men's clothing, women's clothing, and footwear, partially offset by decreases in accessories and hardgoods.

Previous wording

Gross profit was $71.8 million for the three months ended August 3, 2024 compared to $61.7 million for the three months ended July 29, 2023, an increase of $10.1 million, or 16.4%. As a percent of net sales, gross profit increased 250 basis points for the three months ended August 3, 2024 to 34.2%. The increase was primarily driven by a 140 basis point leverage in store occupancy cost, a 90 basis point leverage in web shipping costs, and a 20 basis point leverage in distribution center costs while product margin (defined as net sales minus cost of goods sold excluding shrinkage, buying, occupancy, distribution and warehousing costs and freight costs for store merchandise transfers) remained flat.

Current wording

Gross profit was $78.3 million for the three months ended November 2, 2024 compared to $73.2 million for the three months ended October 28, 2023, an increase of $5.1 million, or 7.0%. As a percent of net sales, gross profit increased 140 basis points for the three months ended November 2, 2024 to 35.2%. The increase was primarily driven by 70 basis point improvement in product margin (defined as net sales minus cost of goods sold excluding shrinkage, buying, occupancy, distribution and warehousing costs and freight costs for store merchandise transfers), 60 basis point leverage in store occupancy cost, 60 basis point benefit in web shipping costs, partially offset by 30 basis point detriment in inventory shrinkage and 10 basis point detriment due to increase in annual incentive compensation.

Previous wording

Selling, general and administrative (“SG&A”) expenses were $72.2 million for both the three months ended August 3, 2024 and for the three months ended July 29, 2023. SG&A expenses as a percent of net sales decreased 280 basis points for the three months ended August 3, 2024 to 34.4%. The decrease was primarily driven by 100 basis points decrease in store wages tied to both leverage on higher sales as well as reduction of hours offset by rate increase, 80 basis points due to decrease in corporate costs, 50 basis points due to store costs not tied to wages primarily impacted by leverage on higher sales, 50 basis points due timing of employee training, 20 basis points leverage in non-store wages, partially offset by 30 basis point increase in annual incentive compensation.

Current wording

Selling, general and administrative (“SG&A”) expense was $75.9 million for the three months ended November 2, 2024 compared to $73.4 million for the three months ended October 28, 2023, an increase of $2.6 million. SG&A expenses as a percent of net sales increased 20 basis points for the three months ended November 2, 2024 to 34.1%. The increase was primarily driven by 50 basis point increase in annual incentive compensation, 20 basis points deleverage in store costs not tied to wages, partially offset by 40 basis points due a reduction in employee training.

Previous wording

Net loss for the three months ended August 3, 2024 was $0.8 million, or $0.04 loss per diluted share, compared with net loss of $8.5 million, or $0.44 loss per diluted share, for the three months ended July 29, 2023. Our effective income tax rate for the three months ended August 3, 2024 was a 252.1% provision for income taxes compared to an 8.5% benefit from income taxes for the three months ended July 29, 2023. The increase in effective income tax rate was primarily due to the allocation of losses across the jurisdictions that we operate.

Current wording

Net income for the three months ended November 2, 2024 was $1.2 million, or $0.06 earnings per diluted share, compared with net loss of $2.2 million, or $0.12 loss per diluted share, for the three months ended October 28, 2023. Our effective income tax rate for the three months ended November 2, 2024 was a 63.4% provision for income taxes compared to an 806.8% provision for income taxes for the three months ended October 28, 2023. The decrease in effective income tax rate was primarily due to the allocation of losses across the jurisdictions that we operate.

Previous wording

Six Months (26 weeks) Ended August 3, 2024 Compared With Six Months (26 weeks) Ended July 29, 2023

Current wording

Nine Months (39 weeks) Ended November 2, 2024 Compared With Nine Months (39 weeks) Ended October 28, 2023

Previous wording

Net sales were $387.6 million for the six months ended August 3, 2024, compared to $377.3 million for the six months ended July 29, 2023, an increase of $10.3 million or 2.7%. The increase in sales was driven by a calendar shift including an additional week of back-to-school season during the first half worth 3.1% of the sales growth. While overall sales trends have continued in a positive trajectory and certain categories of our business improved, sales were still affected by continued inflationary pressures on the consumer and continued challenges in competition for the discretionary dollar. By region, North America sales increased $15.4 million or 5.1% and other international sales (which consists of Europe and Australia sales) decreased $5.1 million or 7.0% and for the six months ended August 3, 2024, compared to the six months ended July 29, 2023. Excluding the impact of changes in foreign exchange rates, North

Current wording

Net sales were $610.0 million for the nine months ended November 2, 2024, compared to $593.7 million for the nine months ended October 28, 2023, an increase of $16.4 million or 2.8%. The increase in sales was primarily driven by comparable sales increases in North America, partially offset by an unfavorable result in Europe. By region, North America sales increased $20.6 million or 4.2% and other international sales (which consists of Europe and Australia sales) decreased $4.2 million or 3.9% and for the nine months ended November 2, 2024, compared to the nine months ended October 28, 2023. Excluding the impact of changes in foreign exchange rates, North America sales increased $21.0 million or 4.3% and other international sales decreased $4.8 million or 4.4% for the nine months ended November 2, 2024 compared to the nine months ended October 28, 2023.

Previous wording

Comparable sales increased 3.6% for the three months ended August 3, 2024 driven by an increase in dollars per transaction that was offset by a decrease in transactions. Dollars per transaction increased due to an increase in both average unit retail and units per transaction. By category, net sales were primarily driven by an increase in men's clothing, women's clothing, followed by footwear, partially offset by accessories and hardgoods.

Current wording

Comparable sales increased 3.2% for the nine months ended November 2, 2024, driven by an increase in dollars per transaction that was offset by a decrease in transactions. Dollars per transaction increased due to an increase in both average unit retail and units per transaction. By category, net sales were primarily driven by an increase in men's clothing, women's clothing, followed by footwear, partially offset by accessories and hardgoods.

Previous wording

Gross profit was $123.7 million for the six months ended August 3, 2024, compared to $111.0 million for the six months ended July 29, 2023, an increase of $12.7 million, or 11.4%. As a percent of net sales, gross profit increased 250 basis points for the six months ended August 3, 2024, to 31.9%. The increase was primarily driven by a 130 basis point leverage in web shipping costs, a 70 basis point leverage in store occupancy cost, and a 50 basis point leverage in distribution center costs, while product margin (defined as net sales minus cost of goods sold excluding shrinkage, buying, occupancy, distribution and warehousing costs and freight costs for store merchandise transfers) remained flat.

Current wording

Gross profit was $202.0 million for the nine months ended November 2, 2024, compared to $184.2 million for the nine months ended October 28, 2023, an increase of $17.8 million, or 9.6%. As a percent of net sales, gross profit increased 210 basis points for the nine months ended November 2, 2024, to 33.1%. The increase was primarily driven by a 110 basis point benefit in web shipping costs, 70 basis point leverage in store occupancy cost, and a 30 basis point benefit in distribution center costs.

Previous wording

Selling, general and administrative (“SG&A”) expenses were $144.2 million for the six months ended August 3, 2024, compared to $142.9 million for the six months ended July 29, 2023, an increase of $1.3 million, or 0.9%. SG&A expenses as a percent of net sales decreased 70 basis points for the six months ended August 3, 2024, to 37.2%. The decrease was primarily driven by 50 basis points decrease in corporate costs, 30 basis points decrease in store wages tied to higher sales and reduction of store hours, 30 basis points due to store costs not tied to wages, partially offset by 40 basis point increase in annual incentive compensation.

Current wording

Selling, general and administrative (“SG&A”) expenses were $220.2 million for the nine months ended November 2, 2024, compared to $216.2 million for the nine months ended October 28, 2023, an increase of $4.0 million, or 1.8%. SG&A expenses as a percent of net sales decreased 30 basis points for the nine months ended November 2, 2024, to 36.0%. The decrease was primarily driven by 30 basis point decrease in corporate costs, 30 basis point decrease in store wages tied to a reduction of store hours, 20 basis points due to store costs not tied to wages, partially offset by 50 basis point increase in annual incentive compensation.

Previous wording

Net loss for the six months ended August 3, 2024, was $17.6 million, or $0.91 loss per diluted share, compared with net loss of $26.9 million, or $1.40 loss per diluted share, for the six months ended July 29, 2023. Our effective income tax rate for the six months ended August 3, 2024, was a 7.4% benefit from income taxes compared to an 11.3% benefit from income taxes for the six months ended July 29, 2023.

Current wording

Net loss for the nine months ended November 2, 2024, was $16.5 million, or $0.86 loss per diluted share, compared with net loss of $29.1 million, or $1.51 loss per diluted share, for the nine months ended October 28, 2023. Our effective income tax rate for the nine months ended November 2, 2024, was a 3.7% provision for income taxes compared to an 4.8% benefit from income taxes for the nine months ended October 28, 2023. The decrease in effective income tax rate was primarily due to the allocation of losses across the jurisdictions that we operate.

Previous wording

During fiscal 2024, we expect to spend approximately $14.0 million to $16.0 million on capital expenditures, a majority of which will relate to leasehold improvements and fixtures for the approximately 7 new stores we remain on track to open in fiscal 2024 and remodels or relocations of existing stores. There can be no assurance that the number of stores that we actually open in fiscal 2024 will not be different from the number of stores we plan to open, or that actual fiscal 2024 capital expenditures will not differ from our expectations.

Current wording

During fiscal 2024, we expect to spend approximately $14.0 million to $16.0 million on capital expenditures, a majority of which will relate to leasehold improvements and fixtures for the approximately 1 new stores we remain on track to open in fiscal 2024 and remodels or relocations of existing stores. There can be no assurance that the number of stores that we actually open in fiscal 2024 will not be different from the number of stores we plan to open, or that actual fiscal 2024 capital expenditures will not differ from our expectations.

Previous wording

Net cash used in operating activities decreased by $8.8 million to $15.4 million used in operating activities for the six months ended August 3, 2024 from $24.3 million used in operating activities for the six months ended July 29, 2023. Net cash used in operating activities was $15.4 million for the six months ended August 3, 2024 related to $44.0 million in unfavorable changes in our operating assets and liabilities and a $17.6 million net loss, excluding $46.2 million of noncash charges included within net loss for the period. Net cash used in operating activities was $24.3 million for the six months ended July 29, 2023 related to $42.5 million in unfavorable changes in our operating assets and liabilities and a $26.9 million net loss, excluding $45.1 million of noncash charges included within net loss for the period. Our operating cash flows generally result primarily from cash received from our customers, offset by cash payments we make for inventory, employee compensation, store occupancy expenses and other operational expenditures. Cash received from our customers generally corresponds to our net sales. Because our customers primarily use credit cards or cash to buy from us, our receivables from customers settle quickly. Historically, changes to our operating cash flows have been driven primarily by changes in operating income, which is impacted by changes to non-cash items such as depreciation, amortization and accretion, deferred taxes, and changes to the components of working capital.

Current wording

Net cash used in operating activities increased by $11.1 million to $34.0 million used in operating activities for the nine months ended November 2, 2024 from $22.9 million used in operating activities for the nine months ended October 28, 2023. Net cash used in operating activities was $34.0 million for the nine months ended November 2, 2024 related to $89.2 million in unfavorable changes in our operating assets and liabilities and a $16.5 million net loss, excluding $71.6 million of noncash charges included within net earnings for the period. Net cash used in operating activities was $22.9 million for the nine months ended October 28, 2023 related to $65.6 million in unfavorable changes in our operating assets and liabilities and a $29.1 million net loss, excluding $71.8 million of noncash charges included within net loss for the period. Our operating cash flows generally result primarily from cash received from our customers, offset by cash payments we make for inventory, employee compensation, store occupancy expenses and other operational expenditures. Cash received from our customers generally corresponds to our net sales. Because our customers primarily use credit cards or cash to buy from us, our receivables from customers settle quickly. Historically, changes to our operating cash flows have been driven primarily by changes in operating income, which is impacted by changes to non-cash items such as depreciation, amortization and accretion, deferred taxes, and changes to the components of working capital.

Previous wording

Net cash provided by investing activities was $15.9 million for the six months ended August 3, 2024 related to $6.3 million of capital expenditures primarily for new store openings and existing store remodels or relocations, partially offset by $22.2 million in net sales of marketable securities. Net cash used in investing activities was $1.4 million for the six months ended July 29, 2023, related to $11.9 million of capital expenditures primarily for new store openings and existing store remodels or relocation, partially offset by $10.5 million in net sales of marketable securities.

Current wording

Net cash provided by investing activities was $22.1 million for the nine months ended November 2, 2024 related to $32.1 million in net sales of marketable securities, partially offset $10.0 million of capital expenditures primarily for new store openings and existing store remodels or relocations. Net cash used in investing activities was $10.4 million for the nine months ended October 28, 2023, related to $16.2 million of capital expenditures primarily for new store openings and existing store remodels or relocation, partially offset by $5.9 million in net sales of marketable securities.

Previous wording

Net cash used in financing activities for the six months ended August 3, 2024 was $19.4 million, related$19.6 million used in the repurchase of common stock and $0.1 million in payments for tax withholding obligations upon vesting of restricted stock partially offset by $0.3 million in proceeds from the issuance and exercise of stock-based awards. Net cash provided by financing activities for the six months ended July 29, 2023 was $0.3 million, related $0.5 million in proceeds from the issuance and exercise of stock-based awards, partially offset by $0.2 million in payments for tax withholding obligations upon vesting of restricted stock.

Current wording

Net cash used in financing activities for the nine months ended November 2, 2024 was $24.6 million, related$25.2 million used in the repurchase of common stock and $0.1 million in payments for tax withholding obligations upon vesting of restricted stock partially offset by $0.7 million in proceeds from the issuance and exercise of stock-based awards. Net cash provided by financing activities for the nine months ended October 28, 2023 was $0.7 million, related to $0.9 million in proceeds from the issuance and exercise of stock-based awards, partially offset by $0.2 million in payments for tax withholding obligations upon vesting of restricted stock.

Previous wording

Additionally, we previously maintained a secured credit agreement with Wells Fargo Bank, N.A., which provided us with a senior secured credit facility (“credit facility”) of up to $25.0 million through December 1, 2024. The credit facility was available for working capital and other general corporate purposes and provided for the issuance of standby and commercial letters of credit. The credit facility was secured by a first-priority security interest in substantially all personal property (but not the real property) of the borrowers and guarantors. The credit agreement was cancelled on May 4, 2024. Outstanding line of credits were transitioned to a cash backed status using restricted cash accounts.

Current wording

Additionally, we previously maintained a secured credit agreement with Wells Fargo Bank, N.A., which provided us with a senior secured credit facility (“credit facility”) of up to $25.0 million through December 1, 2024. The credit facility was available for working capital and other general corporate purposes and provided for the issuance of standby and commercial letters of credit. The credit facility was secured by a first-priority security interest in substantially all personal property (but not the real property) of the borrowers and guarantors. The credit agreement was cancelled on May 3, 2024. Outstanding line of credits were transitioned to a cash backed status using restricted cash accounts. We expect to enter into a new credit facility with similar borrowing capacities with a new lender during the fourth quarter of fiscal 2024.

Previous wording

There were no borrowings or open commercial letters of credit outstanding under the secured credit facility at February 3, 2024. We had open commercial letters of credit outstanding of less than $0.5 at August 3, 2024 and no open commercial letters of credit outstanding as of February 3, 2024. We had $2.7 million in issued, but undrawn, standby letters of credit at August 3, 2024 and $3.5 million in issued, but undrawn, standby letters of credit at February 3, 2024. As of August 3, 2024 the open standby letters of credit are backed by restricted cash deposits at the bank.

Current wording

There were no borrowings or open commercial letters of credit outstanding under the secured credit facility at February 3, 2024. We had no open commercial letters of credit outstanding at November 2, 2024 nor outstanding as of February 3, 2024. We had $2.7 million in issued, but undrawn, standby letters of credit at November 2, 2024 and $3.4 million in issued, but undrawn, standby letters of credit at February 3, 2024 As of November 2, 2024, the open standby letters of credit are backed by restricted cash deposits at the bank.

Previous wording

Our retail market historically has been subject to substantial cyclicality. As the U.S. 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. Economic and consumer confidence can also be affected by a variety of factors, including housing prices, unemployment rates and inflation. When disposable income decreases or discretionary consumer spending is reduced due to a decline in consumer confidence, purchases of apparel and related products may decline. A deterioration in macroeconomic conditions or consumer confidence or uncertainty in the U.S. and global economies and political environment could have a material adverse impact on our results of operations and financial position.

Current wording

Our retail market historically has been subject to substantial cyclicality. As the U.S. 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. Economic and consumer confidence can also be affected by a variety of factors, including housing prices, unemployment rates and inflation. When disposable income decreases or discretionary consumer spending is reduced due to a decline in consumer confidence, purchases of apparel and related products may decline. A deterioration in macroeconomic conditions or consumer confidence or uncertainty in the U.S. 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.

Previous wording

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.

Current wording

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. Additionally, the effects of U.S.-China relations, including escalating U.S.-China tensions and potential tariff increases, retaliations, restrictive regulations or boycotts 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.

Previous wording

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. 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.

Current wording

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. 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.

Previous wording

Information systems are susceptible to an increasing threat of continually evolving 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. Nevertheless, if unauthorized parties gain access to our networks, systems, or databases, they may be able to steal, publish, delete or modify confidential information. In such circumstances, we could be held liable to our customers or other parties or be subject to regulatory or other actions for breaching privacy rules and we may be exposed to reputation damage and loss of customers’ trust and business. This could result in costly investigations and litigation, civil or criminal penalties and adverse publicity that could adversely affect our financial condition, results of operations and reputation. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional resources, train employees and engage third parties. Further, the regulatory environment surrounding information security, cybersecurity and privacy is increasingly demanding. If we are unable to comply with the new and changing security standards, we may be subject to fines, restrictions, and financial exposure, which could adversely affect our retail operations.

Current wording

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. Nevertheless, if unauthorized parties gain access to our networks, systems, or databases, they may be able to steal, publish, delete or modify confidential information. In such circumstances, we could be held liable to our customers or other parties or be subject to regulatory or other actions for breaching privacy rules and we may be exposed to reputation damage and loss of customers’ trust and business. This could result in costly investigations and litigation, civil or criminal penalties and adverse publicity that could adversely affect our financial condition, results of operations and reputation. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional resources, train employees and engage third parties. Further, the regulatory environment surrounding information security, cybersecurity and privacy is increasingly demanding. If we are unable to comply with the new and changing security standards, we may be subject to fines, restrictions, and financial exposure, which could adversely affect our retail operations.