Like other companies in our industry, we have an extended design and manufacturing process, which involves
product design, material purchases, inventory accumulation and the subsequent sale of the inventories, and
accounts receivable collection. This cycle requires us to incur significant expenses relating to the design,
manufacturing, and marketing of our products in advance of the realization of sales, and results in significant
liquidity requirements and working capital fluctuations throughout our fiscal year, which may be amplified by supplier
performance issues and broader supply chain constraints. As a result, these liquidity and working capital demands
may limit our ability to adjust inventory levels and respond efficiently to changes in consumer demand, particularly
during periods of macroeconomic uncertainty. Our forecasting processes rely on assumptions, data, and systems
that may not accurately reflect future consumer or customer demand, or supply chain conditions, including
manufacturing capacity, raw material availability, and logistics constraints. Further, variability and constraints within
our global supply chain may drive higher inventory procurement positions that could negatively affect our working
capital and gross margin as a result of selling excess quantities through close out channels. As a result, our
inventory levels, working capital requirements, and results of operations may be adversely affected by a number of
factors, including:
- constraints or inefficiencies in transportation capacity, delivery timing, inventory flow, or production
scheduling, which may contribute to uneven inventory receipts, elevated inventory levels, or delays
in fulfilling demand;
- unfavorable or unexpected weather patterns that affect consumer demand for seasonally-driven
products, particularly within our UGG brand, which may be intensified by the effects of climate
change;
- changes in consumer preferences, discretionary spending patterns, prevailing fashion trends, and
pricing pressure that may require increased promotional activity to sell inventory;
- macroeconomic conditions, including inflation, interest rate volatility, or global economic uncertainty,
that may affect consumer purchasing behavior, supplier capacity, or logistics costs; and
- market acceptance of our products and competing offerings, and variability in product availability.
The evolution and expansion of our brands and product offerings have made our inventory management activities
more challenging. For example, if we overestimate demand for any products or styles, we may be forced to increase
promotional activity or adjust pricing to sell excess inventories, which would result in lower sales and reduced gross
margin, and we may not be able to recover our investment in the development of new styles and product lines. On
the other hand, if we underestimate demand, or if our independent manufacturing facilities are unable to supply
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products in sufficient quantities or on a timely basis, we may experience inventory shortages that may prevent us
from fulfilling customer orders or result in delays in shipments to customers. If that occurred, we could lose sales,
our relationships with customers could be harmed, and our brand loyalty could be diminished. In either event, these
factors could have a material adverse effect on our results of operations.
We rely upon a number of warehouse and distribution facilities to operate our business, and any damage to
one of these facilities, or any disruptions caused by incorporating new facilities into our operations, could