Exhibit 99.3
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
Certain significant risks and uncertainties are important considerations
to be taken into account in conjunction with consideration and review of Casual
Male Retail Group, Inc.'s (the "Company") reports, registration statements,
information statements, press releases, and other publicly-disseminated
documents (including oral statements concerning Company business information
made on behalf of the Company) that include forward-looking information.
The nature of forward-looking information is that such information
involves assumptions, risks and uncertainties. Certain public documents of the
Company and oral statements made by authorized officers, directors, employees,
agents and representatives of the Company, acting on its behalf, may include
forward-looking information which will be influenced by the following and other
assumptions, risks and uncertainties. Forward-looking information requires
management of the Company to make assumptions, estimates, forecasts and
projections regarding the Company's future results as well as the future
effectiveness of the Company's strategic plans and future operational decisions.
Forward-looking statements made by or on behalf of the Company are subject to
the risk that the forecasts, projections, and expectations of management, or
assumptions underlying such forecasts, projections and expectations, may become
inaccurate. Accordingly, the Company's future financial positions, its actual
results of operations and the implementation of its plans and operations may
differ materially from forward-looking statements made on behalf of the Company.
The following discussion identifies certain important factors that could affect
the Company's financial position, its actual results of operations, and its
actions and could cause the Company's financial position, its results of
operations, and its actions to differ materially from any forward-looking
statements made by or on behalf of the Company. Other factors, which are not
identified herein, could also have such an effect.
Risks Related to the Market in Which We Operate
Our sales will suffer if we fail to accurately predict changing fashion trends
and consumer preferences.
Our business is dependent upon our being able to predict fashion trends,
customer preferences and other fashion-related factors. Customer tastes and
fashion trends are volatile and tend to change rapidly. Our success depends in
large part upon management's ability to effectively predict and respond to
changing fashion tastes and consumer demands and to translate market trends to
appropriate saleable product offerings far in advance. If we are unable to
successfully predict or respond to changing styles or trends and misjudge the
market for our products or any new product lines, our sales will be lower and we
may be faced with a substantial amount of unsold inventory or missed
opportunities. In response, we may be forced to rely on additional markdowns or
promotional sales to dispose of excess, slow-moving inventory, which would
decrease our revenues, profit margins and profits. In addition, the failure to
satisfy consumer demand could have serious longer-term consequences, such as an
adverse impact on our brand recognition and the loss of market share to our
competitors if our customer base comes to believe that other retailers are more
successfully addressing their preferences.
Macroeconomic factors adversely affecting the retail industry could also cause a
decrease our retail sales which would negatively impact our profitability.
Our sales could be negatively impacted by a weak retail environment caused
by a decline in consumer confidence and ultimately a reduction in consumer
spending for such discretionary items such as apparel, which become a lower
priority than necessities such as food and housing. Apparel retailers are
subject to general economic conditions and purchases of apparel may decline at
any time, especially during recessionary periods. In addition, our financial
performance is also sensitive to changes in consumer spending trends and
shopping patterns.
We understand that the retail industry can be adversely affected by
certain economic factors outside of our control that would affect our costs as
well as consumer spending behavior. Some of these factors include rising
interest rates, negative consumer sentiment brought about by uncertainty over
economic recovery and national security, inflation, and rising unemployment.
Further, it is well-known in the apparel industry that when economic
conditions worsen, men are more reluctant than women and children to shop for
clothes for themselves. Because over 80% of our sales are attributable to men's
apparel, we would be especially sensitive to such a decline. We have no ability
to predict or control these economic and political variables.
We could lose market share to competitors in the retail industry, which would
cause a decline in our revenues and have a serious adverse impact on our
profitability.
The United States casual apparel market, men's big and tall market and
footwear industry are highly competitive with many national and regional
department stores, specialty apparel retailers and discount stores offering a
broad range of apparel products similar to the products that we sell. Besides
retail competitors, we consider any casual apparel manufacturer operating in
outlet parks throughout the United States to be a competitor in the casual
apparel market. Due to consolidation in the men's apparel industry, it is
possible that another competitor, either a mass merchant or a men's specialty
store or specialty apparel catalog, could gain market share in men's big and
tall apparel due to more favorable pricing, locations, brand and fashion
assortment and size availability. Recently, sales of Levi's(R) brand jeans have
been impacted by the increased competition from private labels as well as
fashion jeans market entrants and by a decrease in national sales trends of
Levi's(R) brand products. Our future Candie's(R) Outlet stores face substantial
competition in each of our product lines from, among other brands, Skechers,
Steve Madden and Esprit. The presence in the marketplace of various fashion
trends and the limited availability of shelf space also can affect competition.
We may not be able to compete successfully with our competitors in the
future and could lose brand recognition and market share. A significant loss of
market share would put the Company's revenues and profitability at risk.
Our advertising and promotion efforts, while increasing costs, may not result in
increased sales.
Our business is directly affected by the success or failure of the
advertising and promotional efforts of the Company and our vendors. Future
advertising efforts of our company, our vendors or our other licensors may be
costly and may not result in increased sales. If a major advertising campaign
were undertaken without success, then the Company's failure to realize any
revenues from its advertising and promotional expenditures, together with the
possible resulting erosion of brand recognition and loss of market share, would
have a negative impact upon the Company's revenues. In either case, increased
costs and decreased margins, accompanied by static or decreased revenues, would
cause a decline in the Company's profitability.
Risks Related to Our Operations
Our business is likely to be damaged if we are unable to keep certain key
personnel.
Our future success is dependent on the personal efforts, performance and
abilities of our key management. Although none of our senior executives is close
to retirement age and we are not currently aware of any tensions between
management and any senior executive, there is always the possibility that a key
member of the management team could become unwilling or unable to continue in
that capacity for other reasons. For example, the loss of the services of the
Company's chief executive officer, David Levin, or its chief financial officer,
Dennis Hernreich, both of whom are an integral part of our daily operations and
primary decision makers in all operating matters, could significantly impact the
business, until adequate replacements can be identified and put in place, by
causing a loss of organizational focus, poor operating execution, or both. In
addition, the loss of our chief executive officer and chief financial officer,
each of whom has many years of senior executive experience in the retail apparel
industry, could materially reduce our ability to identify and execute potential
strategic initiatives such as joint venture and licensing opportunities, the
establishment of new store locations, and possible acquisitions. That could,
among other things, reduce potential revenues, prevent us from diversifying from
more limited product lines and geographic concentrations, and expose us to
downturns in those markets. The loss of those individuals as well as our
chairman, who also has many years of experience in the capital markets, could
negatively impact our ability to obtain additional debt or equity financing for
our operations or to refinance existing indebtedness, or the terms that might be
negotiated for such financing or refinancing. Those circumstances in turn could
ultimately result in a significant decline in profitability and an erosion in
the Company's financial condition. The competition is intense for the type
of highly skilled individuals with relevant industry experience that we require
and we may not be able to attract and retain new employees of the caliber needed
to achieve our objectives.
If we fail to adequately upgrade and enhance our information systems and control
procedures, our systems may not be able to support our requirements.
The Company depends heavily upon technology and information systems to
control inventory, sales, markdowns, merchandise on hand and other critical
information. We periodically review, improve and, under certain circumstances,
replace our technology and management information systems to provide enhanced
support to all operating areas of our company. Currently, the Company is
undergoing a significant effort to replace Casual Male's existing antiquated
legacy systems, as part of the process of integrating the historical Designs,
Inc. and Casual Male operations.
It is critically important to the successful operation of the Company that
the implementation of the systems integration process, which entails the
replacement, enhancement, or upgrade of all Casual Male's vital information
systems, be completed timely without disruption to the daily operations of the
Company. The Company anticipates that the implementation will require
approximately 12 months to complete.
However, we may not be able to successfully implement required
enhancements to our operating systems in the future. If such upgrades and
enhancements are not successfully implemented, then our current systems may not
be able to continue to support adequately our future management information
requirements.
Any significant deficiencies in our management information systems
resulting in less than optimal systems performance could have a negative impact
upon the business. For example, since the information systems provide vital
information with respect to specific merchandise sales at the SKU level,
replenishment requirements to maintain optimum inventory levels, and sell
through data from which markdown requirements are identified to most
productively sell through poor selling SKU's, if that information is not
consistently provided on a timely and accurate basis the Company's sales could
be severely impacted, or its gross margins could easily erode.
If we fail to continue to improve upon and enhance our present management
information systems, then we may not be able to resolve or eliminate any
existing or potential difficulties, which could have a significant impact on our
business and results of operations.
If the third party manufacturers upon which we are dependent are unable or
unwilling to meet our needs, then we may be unable to obtain sufficient products
of adequate quality.
We do not own or operate any manufacturing facilities and are therefore
are entirely dependent on third parties for the manufacture of the products we
sell, which are the core of our business. Without adequate supplies of
merchandise to sell to our customers in the merchandise styles and fashions
demanded by the Company's particular customer base, sales would decrease
materially and the Company's business would be in jeopardy. Furthermore,
approximately 75-80% of our merchandise are private label items made
specifically for Casual Male and its customers. In the event that manufacturers
are unable or unwilling to ship products to us in a timely manner or continue to
manufacture products for us, we would have to rely on other current
manufacturing sources or identify and qualify new manufacturers. We might not be
able to identify or qualify such manufacturers for existing or new products in a
timely manner and such manufacturers might not allocate sufficient capacity to
us in order to meet our requirements. The consequences of not securing adequate
and timely supplies of private label merchandise would negatively impact proper
inventory levels, sales and gross margin rates, and ultimately the profitability
of the Company.
In addition, even if our current manufacturers continue to manufacture our
products, they may not maintain adequate controls with respect to product
specifications and quality and may not continue to produce products that are
consistent with our standards. If we are forced to rely on products of inferior
quality, then our brand recognition and customer satisfaction would be likely to
suffer and the amount of merchandise we sell, or the prices we charge for such
merchandise, or both, would be reduced, decreasing our revenues and our
profitability.
Should we experience significant unanticipated demand, we will be required
to significantly expand our access to manufacturing, both from current and new
manufacturing sources. If such additional manufacturing capacity is not
available on terms as favorable as those obtained from current sources, then our
revenues or profit margins, or both, will suffer.
If our trademarks or licenses are compromised, then the market for our products
could decline.
We own and use a number of trademarks and operate under certain trademark
license agreements. We believe that these trademarks have significant value and
are instrumental in our ability to create and sustain demand for and market our
products. We cannot assure that these trademarks and licensing agreements will
remain in effect or that they will be renewed. In addition, any future disputes
concerning these trademarks and licenses may cause us to incur significant
litigation costs or force us to suspend use of the trademarks. For additional
details about our license agreements, you should refer to our Annual Report on
Form 10-K, as amended, for the fiscal year ended February 2, 2002 (which we
refer to as the "Form 10-K").
We may not be able to successfully expand our operations as planned.
We plan to significantly expand our operations in fiscal 2003 by opening
several new stores and we expect to have capital expenditures of approximately
$4.0 million. Our expansion plans are discussed in detail in the Form 10-K. Our
growth strategy depends on our ability to open and operate new retail stores on
a profitable basis. Our operating complexity and management responsibilities
will increase as we continue to grow, and we may face challenges in managing our
future growth. This anticipated growth will require that we continue to expand
and improve our operations, including our distribution infrastructure, and
expand, train and manage our employee base. In addition, we may be unable to
hire a sufficient number of qualified personnel to work in our new stores or to
successfully integrate the stores into our business. Our expansion prospects
also depend on a number of other factors, many of which are beyond our control,
including, among other things: economic conditions, competition, and consumer
preferences. We may not be able to achieve our store expansion goals and, even
if we succeed in opening new stores as planned, our newly opened stores may not
achieve revenue or profitability levels comparable to those of our existing
stores in the time periods estimated by us, or at all.
Acts of terrorism or war could adversely impact our business.
Additional actual or threatened acts of terrorism or war could negatively
impact availability of merchandise or consumer spending trends and may otherwise
adversely impact our business. Depending upon the nature of an attack or
threatened attack, consumers may be unwilling or unable to go to our retail
outlets or may otherwise decrease spending in general. A significant decrease in
consumer spending could have a significant adverse impact on our revenues.
In addition, approximately 20% of the Company's merchandise is directly
imported from other countries, and most of its remaining merchandise is supplied
by U.S. domestic suppliers which source their goods from other countries. If
imported goods become difficult or impossible to bring into the United States,
and if we cannot obtain such merchandise from other sources at similar costs,
then the Company's sales, gross margins and profit margins would significantly
decline. Furthermore, in the event that commercial transportation is curtailed
or substantially delayed, the Company may not be able to maintain adequate
inventory levels of important merchandise levels on a consistent basis, which
would negatively impact the Company's sales and potentially erode the confidence
of its customer base, leading to further loss of sales and decline in
profitability.
In extreme circumstances, it may be necessary to close less productive
stores so as to consolidate important merchandise categories into the Company's
most productive stores which would severely impact the Company's profitability
and cash flow.
Additional issuances of our common stock would cause you to incur immediate
dilution.
In private placement transactions in April and May 2002, we issued shares
of common stock, preferred stock convertible into common stock and warrants to
purchase common stock. The issuance of common stock upon
conversion of the preferred stock and exercise of the warrants and other
issuances of additional common stock by us, from time to time, subjects our
common stock to the dilutive effects of such issuances.
Several provisions of our governing law could discourage, delay or prevent
transactions that stockholders might otherwise consider favorable.
It is possible that certain provisions of the Delaware corporate law or,
if we change our state of incorporation from Delaware to Nevada (as approved at
our annual meeting of stockholders on August 8, 2002), the Nevada corporate law
may make it more difficult to accomplish transactions which stockholders may
otherwise deem to be in their best interests. Such provisions may be deemed to
have an anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that might result in the receipt of a premium over the market
price for the securities held by stockholders.
Risks Relating to Our Acquisition of Casual Male
We may fail to realize the cost savings we anticipated from the Casual Male
acquisition.
We anticipate significant cost savings following our May 2002 acquisition
of substantially all the assets of Casual Male, primarily through headcount
reductions, renegotiation of contractual arrangements for supplies and services
associated with the operation for more favorable pricing terms, elimination of
inefficient and costly business processes and costs by streamlining the
Company's management information systems and economies of scale in purchasing.
It is possible that some of the contemplated reductions could fail to take place
on the scale proposed due to unforeseen or underestimated needs for the
employees in question. It is also possible that the cost savings associated with
achieving purchasing economies fail to materialize due to unsuccessful
negotiations with key vendors. There is also a cost to realizing the potential
savings and these costs could potentially be higher than originally contemplated
in management's projections. In such an instance, the amount of the cost savings
would be offset by the higher costs of realizing the savings, thereby reducing
the overall benefit of the acquisition and reducing our expected profitability.
If there are substantial failures to achieve these cost savings, cash flow and
the servicing of debt related to the acquisition could also be reduced.
We may not be able to successfully integrate the Company's prior operations with
the Casual Male operations.
Following the Casual Male acquisition, we face execution risk on two
fronts: (i) successful post-acquisition integration of Casual Male operations
and (ii) on-schedule store openings as outlined in our licensing and joint
venture agreements with Candie's, Inc. and EcKo Complex, LLC, respectively. It
is possible that unforeseen pitfalls during the post-acquisition integration
effort could adversely affect our historical operation of operating branded
outlet stores as well as our ability to operate the Casual Male stores
effectively. In such an event, the Company's anticipated revenue growth may not
be realized and the expected profit margins may not be achieved, and therefore
the Company may not reach the level of profitability anticipated by management
in connection with the acquisition. In an extreme case, the historical levels of
both sales and profit margins for the different businesses could also be
adversely impacted.
We may not succeed in our efforts to manage multiple brands in different
channels of distribution.
Several retailers have had problems executing a corporate strategy aimed
at operating multiple brands in multiple channels. We have expertise in the
outlet channel of distribution, but the Casual Male acquisition introduces
operations in the specialty store and internet channels of distribution. We are
now also responsible for all aspects of brand management with respect to the
Casual Male brand, including advertising and promotion, and the servicing and
merchandising of private label merchandise, which currently represent
approximately 75-80% of Casual Male's merchandise inventory. Under the current
operating model, this function is mostly the responsibility of the branded
manufacturer. If the managing of multiple brands within multiple channels is
poorly executed, the Company will not achieve its expected level of
profitability, and could ultimately be compelled to eliminate the multiple brand
strategy so that the organization may focus on a single brand strategy.
If the size of our target demographic group shrinks, our sales are likely to
decrease.
Research provided to Casual Male by The NPD Group suggests that big and
tall men accounted for approximately 11% of the total men's apparel market for
1999. Casual Male currently targets big and tall men in the 25-54 age group.
However, as more and more food retailers begin to compete on the basis of
providing more healthy menus, and American popular culture becomes more health
conscious, the size of this target demographic could decrease, resulting in
lower sales.
Covenants with our lenders may prevent management from doing things that would
otherwise be in the Company's best interests.
The Third Amended and Restated Loan and Security Agreement that we entered
into with Fleet Retail Finance and other lenders on May 14, 2002 contains
numerous operating covenants that will limit the discretion of management with
respect to certain business matters, and which will place restrictions on, among
other things, our ability to incur additional indebtedness, to create liens or
other encumbrances, and to make certain payments or investments, loans and
guarantees. These restrictions can have a negative impact upon the Company being
able to expend funds as it deems necessary, including for the opening of new
store locations or the pursuit of potential acquisitions, joint ventures or
other strategic initiatives, or enter into important contractual relationships
for the improvement of the operation, which could ultimately negatively impact
the Company's financial performance.
Changes in the Company's credit profile following the Casual Male acquisition
could have a detrimental effect on its relationship with its suppliers.
As a result of the additional debt we incurred to finance the Casual Male
acquisition, we have become a highly leveraged company. This will have several
important effects on our future operations including, but not limited to, (i) a
substantial portion of our cash flow from operations must be dedicated to the
payment of interest on our indebtedness and will not be available for other
purposes, (ii) certain restrictions related to our borrowing may limit our
ability to borrow additional funds or dispose of assets and may affect our
flexibility in planning for, and reacting to, changes in it business, including
other possible acquisition activities, and (iii) our ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate or other purposes may be impaired.
Based on the foregoing, our credit risk profile has changed from that of a
historically unleveraged company to that of a highly leveraged company. As such,
certain suppliers may change the terms under which they are willing to extend
trade credit to us or the amount of such credit they are willing to extend at
any one time. In both cases the amount of trade credit would be reduced, which
would negatively impact the Company's working capital available for operating
purposes, increase the borrowings under its revolving line of credit, and reduce
the liquidity amount available under its revolving line of credit. In the event
that suppliers reduce credit terms or place us on a cash-on-delivery (C.O.D.)
basis, our working capital liquidity could be substantially reduced and we could
have difficulty maintaining inventory levels or otherwise funding our operating
needs.