Pottery Barn 2009 Annual Report Download - page 27

purchased from us under our brand names. We have no prior experience operating through these types of third
party arrangements, and this arrangement may not be successful. The administration of this relationship may
divert management attention and require more resources than we expect. While we expect that this will be a
small part of our business in the near future, if successful, we plan to continue to increase the number of stores
and countries in which these franchises operate as part of our efforts to expand internationally. The effect of
these arrangements on our business and results of operations is uncertain and will depend upon various factors,
including the demand for our products in new markets internationally. In addition, certain aspects of these
arrangements are not directly within our control, such as the ability of this third party to meet their projections
regarding store openings and sales. Moreover, while the agreement we have entered into may provide us with
certain termination rights, to the extent that this third party does not operate its stores in a manner consistent with
our requirements regarding our brand identities and customer experience standards, the value of our brands could
be impaired. In addition, in connection with this new franchise agreement, we are implementing certain new
processes that will subject us to additional regulations and laws, such as U.S. export regulations. Failure to
comply with any applicable laws or regulations could have an adverse effect on our results of operations.
If our operating and financial performance in any given period does not meet the extensive guidance that we
have provided to the public, our stock price may decline.
We provide extensive public guidance on our expected operating and financial results for future periods. Although
we believe that this guidance provides investors and analysts with a better understanding of management’s
expectations for the future and is useful to our shareholders and potential shareholders, such guidance is comprised
of forward-looking statements subject to the risks and uncertainties described in this report and in our other public
filings and public statements. Our actual results may not always be in line with or exceed the guidance we have
provided, especially in times of great economic uncertainty. In the past, when we have reduced our previously
provided guidance, the market price of our common stock has declined. If, in the future, our operating or financial
results for a particular period do not meet our guidance or the expectations of investment analysts or if we reduce
our guidance for future periods, the market price of our common stock may decline as well.
A variety of factors, including seasonality and the economic downturn, may cause our quarterly operating results
to fluctuate, leading to volatility in our stock price.
Our quarterly results have fluctuated in the past and may fluctuate in the future, depending upon a variety of
factors, including shifts in the timing of holiday selling seasons, including Valentine’s Day, Easter, Halloween,
Thanksgiving and Christmas, as well as changes in economic conditions. A significant portion of our revenues
and net earnings has typically been realized during the period from October through December each year. In
anticipation of increased holiday sales activity, we incur certain significant incremental expenses prior to and
during peak selling seasons, particularly October through December, including fixed catalog production and
mailing costs and the costs associated with hiring a substantial number of temporary employees to supplement
our existing workforce. For example, we realized lower-than-historical revenues and net earnings during the
October through December selling season of fiscal 2008 due to the economic downturn, which affected our
business and operating results.
We may require external funding sources for operating funds, which may cost more than we expect, or not be
available at the levels we require and, as a consequence, our expenses and operating results could be negatively
affected.
We regularly review and evaluate our liquidity and capital needs. We currently believe that our available cash,
cash equivalents and cash flow from operations will be sufficient to finance our operations and expected capital
requirements for at least the next 12 months. However, we might experience periods during which we encounter
additional cash needs and we might need additional external funding to support our operations. Although we
were able to amend our line of credit facility during fiscal 2008 on acceptable terms, in the event we require
additional liquidity from our lenders, such funds may not be available to us or may not be available to us on
acceptable terms in the future. For example, in the event we were to breach any of our financial covenants, our
banks would not be required to provide us with additional funding, or they may require us to renegotiate our
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Form 10-K