Inflation and deflation may adversely affect the Company’s operating results.
It is difficult to forecast whether fiscal 2016 will be a period of inflation or deflation. Food deflation could reduce
sales growth and earnings, while food inflation, combined with reduced consumer spending, could reduce gross
profit margins. If the Company experiences significant inflation or deflation, especially in the context of
continued lower consumer spending, then the Company’s financial condition and results of operations may be
adversely affected.
Legal, Regulatory and Legislative Risks
The Company’s Military segment operations are dependent upon domestic and international military
distribution. A change in the military commissary system, or level of governmental funding, could negatively
impact the Company’s results of operations and financial condition.
Because the Company’s Military segment sells and distributes grocery products to military commissaries and
exchanges in the United States and overseas, any material changes in the commissary system, the level of
governmental funding to DeCA, military staffing levels, or the locations of bases may have a corresponding
impact on the sales and operating performance of this segment. These changes could include privatization of
some or all of the military commissary system, relocation or consolidation of commissaries and exchanges, base
closings, troop redeployments or consolidations in the geographic areas containing commissaries and exchanges
served by the Company, or a reduction in the number of persons having access to the commissaries and
exchanges. Mandated reductions in the government expenditures, including those imposed as a result of
sequestration, may impact the level of funding to DeCA and could have a material impact on the Company’s
operations.
Government regulation could harm the Company’s business.
The Company is subject to extensive governmental laws and regulations including, but not limited to,
employment and wage laws and regulations, regulations governing the sale of pharmaceuticals, alcohol and
tobacco, minimum wage requirements, working condition requirements, public accessibility requirements,
citizenship requirements, environmental regulation, and other laws and regulations. A violation or change of
these laws could have a material effect on the Company’s business, financial condition and results of operations.
Like other companies that sell food and drugs, the Company’s corporate-owned retail stores are subject to
various federal, state, local, and foreign laws, regulations, and administrative practices affecting its business. The
Company must comply with numerous provisions regulating health and sanitation standards, facilities inspection,
food labeling, and licensing for the sale of food, drugs, tobacco, and alcoholic beverages.
The Company cannot predict the nature of future laws, regulations, interpretations, or applications, or determine
what effect either additional government regulations or administrative orders, when and if promulgated, or
disparate federal, state, local, and foreign regulatory requirements will have on its future business. They could,
however, require that the Company recall or discontinue sale of certain products, make substantial changes to its
facilities or operations, or otherwise result in substantial increases in operating expense. Any or all of such
requirements could have an adverse effect on the Company’s results of operations and financial condition.
The Company is subject to state and federal environmental regulations.
Under various federal, state and local laws, ordinances and regulations, the Company may, as the owner or
operator of its locations, be liable for the costs of removal or remediation of contamination at these current or
former locations, whether or not the Company knew of, or were responsible for, the presences of such
contamination. The failure to properly remediate such contamination may subject the Company to liability to
third parties and may adversely affect its ability to sell or lease such property or to borrow money using such
property as collateral.
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