Pier 1 2016 Annual Report Download - page 13

ITEM 1A. RISK FACTORS.
Item 1A. Risk Factors.
The Company’s business is subject to risk. The following discussion, along with Management’s Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes, sets forth the most
significant risks and uncertainties that management believes could adversely affect the Company’s business, financial condition or
results of operations. Additional risks and uncertainties that management is not aware of or that management currently deems
immaterial may also have a material adverse effect on the Company’s business, financial condition or results of operations. There
is no assurance that this discussion covers all potential risks that may be faced by the Company. The occurrence of the
described risks could cause the Company’s results to differ materially from those described in the forward-looking statements
included elsewhere in this report, and could have a material adverse effect on the Company’s business, financial condition or
results of operations.
Strategic Risks and Strategy Execution Risks
The Company must be able to anticipate, identify and respond to changing trends and
customer preferences for home décor and furniture.
The success of the Company’s specialty retail business depends largely upon its ability to predict trends consistently and to
provide merchandise that satisfies consumer demand in a timely manner. Consumer preferences often change and may not be
reasonably predicted. A majority of the Company’s merchandise is manufactured, purchased and imported from countries
around the world and may be ordered well in advance of the applicable selling season. Extended lead times may make it difficult
to respond rapidly to changes in consumer demand, and as a result, the Company may be unable to react quickly and source
needed merchandise. In addition, the Company’s vendors may not have the ability to handle its increased demand for product or
speed of replenishment. The seasonal nature of the business leads the Company to purchase and requires it to carry a
significant amount of inventory prior to its peak selling season. As a result, the Company may be vulnerable to evolving home
furnishing trends, changes in customer preferences, and pricing shifts, and may misjudge the timing and selection of
merchandise purchases. The Company’s failure to anticipate, predict and respond in a timely manner to changing trends could
lead to lower sales and additional discounts and markdowns in an effort to clear merchandise, which could have a negative
impact on merchandise margin and, in turn, the results of operations.
Failure by the Company to identify, develop and successfully implement strategic initiatives
could have a negative impact on the Company.
The Company’s strategies for long-term growth, strategic plans and capital allocation are dependent on the Company’s ability to
identify and successfully implement those initiatives. If they are not properly identified, developed and successfully executed, the
implementation of such initiatives may negatively impact the Company’s business operations and financial results. While the
Company believes these disruptions would be short-term, their adverse impact could be material.
The Company outsources certain business processes to third-party vendors and has
certain business relationships that subject the Company to risks, including disruptions in
business and increased costs.
The Company outsources numerous business processes to third parties including gift card tracking and authorization, credit card
authorization and processing, store schedule visibility and time/attendance tracking, store maintenance services, maintenance
and support of the Company’s website and e-Commerce platform, certain marketing services, insurance claims processing,
customs filings and reporting, domestic and ocean freight including certain processing functions, shipment and delivery of
customer orders including in-home delivery, certain merchandise compliance functions including testing, certain payroll
processing and various tax filings, record keeping for certain employment benefits including retirement plans and the stock
purchase plan, and third party vendor auditing. In addition, the Company also has business relationships with third parties to
provide essential services such as the extension of credit to its customers and maintenance of the Pier 1 rewards credit card
program. The Company makes a diligent effort to ensure that all providers of these services are observing proper internal control
and business continuity practices, such as redundant processing facilities; however, there are no guarantees that failures will not
occur. Failure of third parties to provide adequate services or the Company’s inability to arrange for alternative providers on
favorable terms in a timely manner could have a negative effect on the Company’s financial results.
PIER 1 IMPORTS, INC. 2016 Form 10-K 7