Leverage RiskAn elevated debt-to-equity ratio increases financial vulnerability to sales volatility and interest cost moves. With retail cyclicality, leverage can constrain strategic flexibility, raise refinancing risk and limit capital allocation options if cash flow softens, making balance sheet management a durable risk.
Declining Net Profit MarginA falling net margin despite strong gross margins signals pressure from higher operating costs, SG&A, or financing expenses. Persistent margin erosion would weaken returns on incremental revenue, reduce free cash flow available for reinvestment, and impair the company’s ability to sustain payouts or absorb shocks.
Volatile Cash Flow HistoryHistorical swings in free cash flow, even with a recent uptick, show cash generation can be uneven. For a leveraged retailer, FCF volatility complicates planning for capex, inventory and debt servicing, increasing the chance of funding stress or curtailed shareholder returns in adverse quarters.