Item 8.01 Other Events
Reliance on SEC Relief from Filing Requirements
The Company is also filing this
Current Report on Form 8-K pursuant to the Order of the Securities and Exchange Commission (the “SEC”), issued
March 25, 2020 pursuant to Section 36 of the Exchange Act, granting exemptions from specified provisions of the Exchange
Act and certain rules thereunder (Release No. 34-88465) (the “Order”). In reliance on the Order, the Company
will delay the filing of its Annual Report (its “Annual Report”) on Form 10-K for the year ended February 2,
2020, originally due on April 2, 2020. The Company anticipates filing the Annual Report with the SEC on or before May 17,
2020.
The Company requires additional time
to finalize its Annual Report due to circumstances related to COVID-19, the disease caused by the coronavirus. Among other
factors, the shutdown of all of the Company’s stores and related disruptions to the Company’s business and
operations, and the related uncertainty as to when or the manner in which the conditions surrounding the COVID-19 pandemic
will change (including when restrictions are lifted, when stores can reopen and the degree of customer re-engagement), have
necessitated, and continue to necessitate, a series of actions by management, including actions related to the
Company’s outlook for next twelve months of liquidity, which have delayed completion of the audit of the 2019 financial
statements. These actions, over and above targeted reductions in discretionary operating expenses and capital expenditures,
are ongoing, and include exploring financing opportunities and seeking further covenant relief and counterparty concessions
(see “Additional Risk Factor Disclosure” below).
These recent conditions and events
have had a material adverse effect on the Company’s results of operations, cash flows and liquidity and have
necessitated that management, in connection with the Company finalizing the Annual Report, evaluate (as contemplated by
Financial Accounting Standards Board Accounting Standards Update 2014-15) whether these conditions and events raise
substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the
Company’s 2019 financial statements are issued and consider whether its plans intended to mitigate these conditions and
events (namely, those described above and in “Additional Risk Factor Disclosure” below) alleviate the substantial
doubt. The suspension of in-person operations by the Company at its headquarters and by its professional advisors and the
reduced staffing by the Company, all as a result of the COVID-19 pandemic, have limited support from the Company’s
remaining staff and its professional advisors. All of these disruptions have, in turn, delayed the Company’s ability to
complete its Annual Report. The Company currently anticipates that its financial statements will contain disclosures
indicating substantial doubt about the Company’s ability to continue as a going concern as a result of the events
occurring after February 2, 2020. The Company is working diligently to address
these issues to permit the Annual Report to be filed on or before May 17, 2020.
Additional Risk Factor Disclosure
COVID-19 has had an adverse effect
on our business that is material and may continue to do so.
During March 2020, the World Health Organization
declared the rapidly growing coronavirus outbreak to be a global pandemic. The COVID-19 pandemic has significantly impacted health
and economic conditions throughout the United States. Federal, state and local governments took a variety of actions to contain
the spread of COVID-19. Many jurisdictions where our stores are located required mandatory store closures or imposed capacity limitations
and other restrictions affecting our operations. As of March 20, 2020, all of our 137 operating stores were temporarily closed,
including our newest store that opened on March 16, 2020. These developments have had a material adverse impact on the Company’s
results of operations, financial condition and cash flows.
Our business continuity team also led
our crisis response efforts to ensure continuity of operations as we closed stores and the corporate office. We reduced
expenses broadly, including furloughing nearly all of our workforce except a small team of essential personnel, reducing pay
and benefits for remaining employees, cutting back capital spending, and halting all planned store openings. We also
suspended our share repurchase program and our dividend, and fully drew down the remaining credit available under our
$500,000 revolving credit facility as of the date of this filing.
We cannot predict how soon we will be able
to reopen our stores, and our ability to reopen will depend in part on the actions of a number of governmental bodies over which
we have no control. Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our stores, which
may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including
job losses. Considering the significant uncertainty as to when we can reopen some or all of our stores and the uncertain customer
demand environment, in addition to the actions described above, we:
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have begun discussions with our landlords, vendors, and other business partners to reduce our lease
and contract payments and obtain other concessions;
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are in discussion with our lenders to obtain covenant relief to avoid events of default; and
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due to the impact of coronavirus on the economy and our business, have engaged in and are continuing
to engage in, discussions with various parties to explore financing opportunities to enhance liquidity.
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While our lenders have granted a waiver
of any event of default associated with receiving an auditor’s report indicating a substantial doubt about the Company’s
ability to continue as a going concern in connection with our year-end audit, and some landlords and business partners have agreed
to certain concessions, there can be no assurance that we will be successful in obtaining all of the relief we are seeking. Although
the lenders under the existing credit facility may waive the defaults or forebear the exercise of remedies, there can be no assurance
that they would do so. Failure to obtain such a waiver would have a material adverse effect on the Company’s liquidity,
financial condition and results of operations and may result in filing a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code in order to implement a restructuring plan.
The outbreak of COVID-19 has caused significant
disruptions to the Company’s ability to generate profitability and cash flows, and uncertainty regarding the length of the
disruption may adversely impact our ability to raise additional capital. The ultimate impact of the COVID-19 pandemic on our business,
results of operations, financial condition and cash flows will depend on our ability to have sufficient liquidity until such time
as our stores can again generate revenue and profits capable of supporting our ongoing operations, all of which remain highly uncertain
at this time.
Forward-Looking Statements
The Company cautions that this report contains
forward-looking statements. These forward-looking statements involve risks and uncertainties and, consequently, could be affected
by the uncertain and unprecedented impact of the coronavirus on our business and operations and the related impact on our liquidity
needs; our ability to continue as a going concern; our ability to obtain waivers, and thereafter continue to satisfy covenant requirements,
under our revolving credit facility; our ability to access other funding sources; the duration of government-mandated and voluntary
shutdowns; the speed with which our stores safely can be reopened and the level of customer demand following reopening; the economic
impact of the coronavirus and related disruptions on the communities we serve; our overall level of indebtedness; general business
and economic conditions, including as a result of the coronavirus; the impact of competition; the seasonality of the Company's
business; adverse weather conditions; future commodity prices; guest and employee complaints and litigation; fuel and utility costs;
labor costs and availability; changes in consumer and corporate spending, including as a result of the coronavirus; changes in
demographic trends; changes in governmental regulations; unfavorable publicity, our ability to open new stores, and acts of God.
Accordingly, actual results may differ materially from the forward-looking statements, and the Company therefore cautions you against
relying on such forward-looking statements. The Company intends these forward-looking statements to speak only as of the time of
this report and does not undertake to update or revise them as more appropriate information becomes available, except as required
by law.