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October 8, 2024
Sharon John
President and Chief Executive Officer
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October 10, 2024
Voin Todorovic
Chief Financial Officer
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October 14, 2024
J. Christopher Hurt
Chief Operations Officer
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Other consists primarily of deferred financing costs related to the Company's credit facility.
Accrued rent and related expenses consist of accrued costs associated with non-lease components.
Prepaid taxes consist of prepaid federal and state income tax.
Variable lease costs consist of leases with variable rent structures, which are intended to increase flexibility in an environment with expected high sales volatility and provide a natural hedge against potential sales declines.
North America includes corporately-managed locations in the United States and Canada.
Accrued expense - Other consists of accrued costs associated with a legal reserve accrual.
Prepaid occupancy consists of prepaid expenses related to variable non-lease components.
Europe includes corporately-managed locations in the U.K. and Ireland and sales to wholesale customers in Europe.
Additional paid-in capital (“APIC”)
Other includes franchise businesses outside of North America and Europe.
Performance-based restricted stock outstanding, granted, and forfeited are presented at 100% of target.
Accumulated other comprehensive loss (“AOCI”)
Other consists primarily of prepaid expense related to information technology maintenance contracts and software as a service.
Entertainment production asset includes the direct costs, production overhead and development costs in producing entertainment assets such as films or music.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| |
| For the quarterly period ended November 2, 2024 |
OR
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| |
| For the transition period from to |
Commission file number: 001-32320
BUILD-A-BEAR WORKSHOP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 43-1883836 |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
| |
415 South 18th St. St. Louis, Missouri | 63103 |
(Address of Principal Executive Offices) | (Zip Code) |
(314) 423-8000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common stock | BBW | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☒ |
| |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of December 9, 2024, there were 13,439,903 issued and outstanding shares of the registrant’s common stock.
BUILD-A-BEAR WORKSHOP, INC.
INDEX TO FORM 10-Q
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
| | November 2, | | | February 3, | | | October 28, | |
| | 2024 | | | 2024 | | | 2023 | |
| | (Unaudited) | | | | | | | (Unaudited) | |
ASSETS | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 28,955 | | | $ | 44,327 | | | $ | 24,800 | |
Inventories, net | | | 70,774 | | | | 63,499 | | | | 64,466 | |
Receivables, net | | | 13,461 | | | | 8,569 | | | | 13,908 | |
Prepaid expenses and other current assets | | | 11,982 | | | | 11,377 | | | | 13,592 | |
Total current assets | | | 125,172 | | | | 127,772 | | | | 116,766 | |
| | | | | | | | | | | | |
Operating lease right-of-use asset | | | 91,268 | | | | 73,443 | | | | 67,768 | |
Property and equipment, net | | | 54,498 | | | | 55,262 | | | | 51,914 | |
Deferred tax assets | | | 8,638 | | | | 8,682 | | | | 6,822 | |
Other assets, net | | | 6,286 | | | | 7,166 | | | | 7,273 | |
Total Assets | | $ | 285,862 | | | $ | 272,325 | | | $ | 250,543 | |
| | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
Current liabilities: | | | | | | | | | | | | |
Accounts payable | | $ | 18,403 | | | $ | 16,170 | | | $ | 11,961 | |
Accrued expenses | | | 19,994 | | | | 19,954 | | | | 25,319 | |
Operating lease liability short term | | | 28,832 | | | | 25,961 | | | | 26,002 | |
Gift cards and customer deposits | | | 15,697 | | | | 18,134 | | | | 18,366 | |
Deferred revenue and other | | | 3,498 | | | | 3,514 | | | | 3,665 | |
Total current liabilities | | | 86,424 | | | | 83,733 | | | | 85,313 | |
| | | | | | | | | | | | |
Operating lease liability long term | | | 69,518 | | | | 57,609 | | | | 52,423 | |
Other long-term liabilities | | | 1,347 | | | | 1,321 | | | | 1,159 | |
| | | | | | | | | | | | |
Stockholders' equity: | | | | | | | | | | | | |
Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares issued or outstanding at November 2, 2024, February 3, 2024 and October 28, 2023 | | | - | | | | - | | | | - | |
Common stock, par value $0.01, Shares authorized: 50,000,000; Issued and outstanding: 13,445,191, 14,172,362, and 14,391,876 shares, respectively | | | 135 | | | | 142 | | | | 144 | |
Additional paid-in capital | | | 62,511 | | | | 66,330 | | | | 66,641 | |
Accumulated other comprehensive loss | | | (11,811 | ) | | | (12,082 | ) | | | (12,319 | ) |
Retained earnings | | | 77,738 | | | | 75,272 | | | | 57,182 | |
Total stockholders' equity | | | 128,573 | | | | 129,662 | | | | 111,648 | |
Total Liabilities and Stockholders' Equity | | $ | 285,862 | | | $ | 272,325 | | | $ | 250,543 | |
See accompanying notes to condensed consolidated financial statements.
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except share and per share data)
| | Thirteen weeks ended | | | Thirty-nine weeks ended | |
| | November 2, | | | October 28, | | | November 2, | | | October 28, | |
| | 2024 | | | 2023 | | | 2024 | | | 2023 | |
Revenues: | | | | | | | | | | | | | | | | |
Net retail sales | | $ | 109,503 | | | $ | 100,411 | | | $ | 320,826 | | | $ | 315,972 | |
Commercial revenue | | | 8,580 | | | | 6,020 | | | | 21,858 | | | | 17,685 | |
International franchising | | | 1,347 | | | | 1,131 | | | | 3,274 | | | | 3,180 | |
Total revenues | | | 119,430 | | | | 107,562 | | | | 345,958 | | | | 336,837 | |
| | | | | | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | | | | | |
Cost of merchandise sold - retail | | | 50,116 | | | | 47,551 | | | | 147,138 | | | | 146,165 | |
Cost of merchandise sold - commercial | | | 3,669 | | | | 2,675 | | | | 9,210 | | | | 8,458 | |
Cost of merchandise sold - international franchising | | | 1,005 | | | | 703 | | | | 2,236 | | | | 2,042 | |
Total cost of merchandise sold | | | 54,790 | | | | 50,929 | | | | 158,584 | | | | 156,665 | |
Consolidated gross profit | | | 64,640 | | | | 56,633 | | | | 187,374 | | | | 180,172 | |
Selling, general and administrative expense | | | 51,668 | | | | 46,566 | | | | 148,442 | | | | 140,516 | |
Interest income, net | | | (109 | ) | | | (281 | ) | | | (723 | ) | | | (524 | ) |
Income before income taxes | | | 13,081 | | | | 10,348 | | | | 39,655 | | | | 40,180 | |
Income tax expense | | | 3,211 | | | | 2,762 | | | | 9,548 | | | | 9,648 | |
Net income | | $ | 9,870 | | | $ | 7,586 | | | $ | 30,107 | | | $ | 30,532 | |
| | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | 102 | | | | (302 | ) | | | 271 | | | | (45 | ) |
Comprehensive income | | $ | 9,972 | | | $ | 7,284 | | | $ | 30,378 | | | $ | 30,487 | |
| | | | | | | | | | | | | | | | |
Income per common share: | | | | | | | | | | | | | | | | |
Basic | | $ | 0.74 | | | $ | 0.53 | | | $ | 2.20 | | | $ | 2.12 | |
Diluted | | $ | 0.73 | | | $ | 0.53 | | | $ | 2.20 | | | $ | 2.10 | |
| | | | | | | | | | | | | | | | |
Shares used in computing common per share amounts: | | | | | | | | | | | | | | | | |
Basic | | | 13,425,332 | | | | 14,362,702 | | | | 13,672,416 | | | | 14,413,308 | |
Diluted | | | 13,461,983 | | | | 14,438,795 | | | | 13,712,461 | | | | 14,563,974 | |
See accompanying notes to condensed consolidated financial statements.
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
| | Thirty-nine weeks ended | |
| | November 2, | | | October 28, | |
| | 2024 | | | 2023 | |
| | | | | | | | |
Cash flows provided by operating activities: | | | | | | | | |
Net income | | $ | 30,107 | | | $ | 30,532 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| | | | | | | | |
Depreciation and amortization | | | 10,983 | | | | 9,540 | |
Share-based and performance-based stock compensation | | | 1,694 | | | | 2,492 | |
Provision/adjustments for doubtful accounts | | | 81 | | | | (276 | ) |
Loss on disposal of property and equipment | | | 309 | | | | 85 | |
Deferred taxes | | | 67 | | | | (41 | ) |
Change in assets and liabilities: | | | | | | | | |
Inventories, net | | | (7,085 | ) | | | 5,729 | |
Receivables, net | | | (4,891 | ) | | | 895 | |
Prepaid expenses and other assets | | | (11 | ) | | | 2,511 | |
Accounts payable and accrued expenses | | | 1,930 | | | | (10,408 | ) |
Operating leases | | | (3,077 | ) | | | (4,311 | ) |
Gift cards and customer deposits | | | (2,438 | ) | | | (1,021 | ) |
Deferred revenue | | | (93 | ) | | | (2,987 | ) |
Net cash provided by operating activities | | | 27,576 | | | | 32,740 | |
Cash flows used in investing activities: | | | | | | | | |
Purchases of property and equipment | | | (9,571 | ) | | | (11,124 | ) |
Net cash used in investing activities | | | (9,571 | ) | | | (11,124 | ) |
Cash flows used in financing activities: | | | | | | | | |
Purchases of common stock for employee equity awards, net of tax | | | (1,869 | ) | | | (1,797 | ) |
Cash dividends paid | | | (8,336 | ) | | | (22,098 | ) |
Purchases of Company’s common stock | | | (23,181 | ) | | | (15,239 | ) |
Net cash used in financing activities | | | (33,386 | ) | | | (39,134 | ) |
Effect of exchange rates on cash | | | 9 | | | | 120 | |
Decrease in cash, cash equivalents, and restricted cash | | | (15,372 | ) | | | (17,398 | ) |
Cash, cash equivalents and restricted cash, beginning of period | | | 44,327 | | | | 42,198 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 28,955 | | | $ | 24,800 | |
| | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | |
Cash and cash equivalents | | $ | 28,558 | | | $ | 24,413 | |
Restricted cash from long-term deposits | | $ | 397 | | | $ | 387 | |
Total cash, cash equivalents and restricted cash | | $ | 28,955 | | | $ | 24,800 | |
| | | | | | | | |
Net cash paid during the period for income taxes | | $ | 9,597 | | | $ | 16,785 | |
See accompanying notes to condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The condensed consolidated financial statements included herein are unaudited and have been prepared by Build-A-Bear Workshop, Inc. and its subsidiaries (collectively, the “Company”) pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet of the Company as of February 3, 2024, was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to summarize fairly the financial position of the Company and the results of the Company’s operations and cash flows for the periods presented. All of these adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. Because of the seasonal nature of the Company’s operations, results of operations of any single reporting period should not be considered as indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended February 3, 2024, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on April 18, 2024.
Certain prior period amounts in the notes to the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings attributable to Build-A-Bear Workshop, Inc.
Significant Accounting Policies
The Company's significant accounting policies are summarized in Note 2 to the consolidated financial statements included in its Form 10-K for the year ended February 3, 2024.
2. Revenue
Currently, most of the Company’s revenue is derived from retail sales (including from its e-commerce sites) and is recognized when control of the merchandise is transferred to the customer. The Company's disaggregated revenue is fully disclosed as net sales to external customers by reporting segment and by geographic area (See Note 11 — Segment Information for additional information). The Company's direct-to-consumer reporting segment represents 92% of consolidated revenue for the third quarter of fiscal 2024. The majority of these sales transactions were single performance obligations that were recorded when control of merchandise was transferred to the customer.
The following is a description of principal activities from which the Company generates its revenue, by reportable segment.
The Company’s direct-to-consumer segment includes the operating activities of corporately-managed stores, other retail-delivered operations and e-commerce demand (orders generated online to be fulfilled from either the Company's warehouse or its stores). Direct-to-consumer revenue is recognized when control of the merchandise is transferred to the customer and for the Company's online sales, generally upon estimated delivery to the customer. Revenue is measured as the amount of consideration, including any discounts or incentives, the Company expects to receive in exchange for transferring the merchandise. Product returns have historically averaged less than one-half of one percent due to the personalized and interactive nature of its products, where consumers customize their own stuffed animal. The Company has elected to exclude from revenue all collected sales, value added, and other taxes paid by its customers.
For the Company’s gift cards, revenue is deferred for single transactions until redemption including any related gift card discounts. Approximately 80% of gift cards are redeemed within three years of issuance and over the last three years, approximately 65% of gift cards issued have been redeemed within the first twelve months. In addition, unredeemed gift cards or breakage revenue is recorded in proportion to the customers’ redemption pattern using an estimated breakage rate based on historical experience. Subsequent to stores reopening following shutdowns caused by the pandemic, the Company experienced lower redemptions of its gift cards for all periods of outstanding activated cards compared to pre-pandemic redemption patterns (fiscal year 2019 and earlier), which impacts the gift card breakage rate. The Company does not believe that the redemption pattern experienced during the pandemic reflects the pattern in the future and has adjusted the historical redemption data used to calculate the breakage rate. The Company continues to evaluate expected breakage annually and adjusts the breakage rates in the fourth quarter of each year, or at other times if significant changes in customer behavior are detected. Changes to breakage estimates impact revenue recognition prospectively. Further, given the magnitude of the Company's gift card liability, the changes in breakage rates could have a significant impact on the amount of breakage revenue recognized in future periods. As a matter of sensitivity, a hypothetical 1% change in our gift card breakage rate in fiscal 2023 would have resulted in a change in breakage revenue of $1.0 million.
For certain qualifying transactions, a portion of revenue transactions are deferred for the obligation related to the Company’s loyalty program or when a material right in the form of a future discount is granted. In these transactions, the transaction price is allocated to the separate performance obligations based on the relative standalone selling price. The standalone selling price for the points earned for the Company’s loyalty program is estimated using the net retail value of the merchandise purchased, adjusted for estimated breakage based on historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired. The Company issues certificates daily to loyalty program members who have earned 100 or more points in North America and 50 points or more in the U.K. with certificates historically expiring in six months if not redeemed. The Company assesses the redemption rates of its certifications on a quarterly basis to update the rate at which loyalty program points turn into certifications and the rate that certifications are redeemed. In regard to the consolidated balance sheet, contract liabilities related to the loyalty program are classified as deferred revenue and other.
The Company’s commercial segment includes transactions with other businesses and is mainly comprised of licensing the Company’s intellectual properties for third-party use and wholesale sales of merchandise, including supplies and fixtures. Revenue for wholesale sales is recognized when control of the merchandise or fixtures is transferred to the customer, which generally occurs upon delivery to the customer. The license agreements provide the customer with highly interrelated rights that are not distinct in the context of the contract and therefore, have been accounted for as a single performance obligation and recognized as licensee sales occur. If the contract includes a guaranteed minimum, the minimum guarantee is recognized on a straight-line basis over the guarantee term until such time as royalties earned through licensee sales exceed the minimum guarantee. The Company classifies these guaranteed minimum contract liabilities as deferred revenue on the consolidated balance sheet.
The Company’s international franchising segment includes the activities with franchisees who operate store locations in certain countries and includes development fees, sales-based royalties and merchandise, including supplies and fixture sales. The Company's obligations under the franchise agreements are ongoing and include operations and product development support and training, generally concentrated around initial store openings. These obligations are highly interrelated rights that are not distinct in the context of the contract and, therefore, have been accounted for as a single performance obligation and recognized as franchisee sales occur. If the contract includes an initial, one-time nonrefundable development fee, this fee is recognized on a straight-line basis over the term of the franchise agreement, which may extend for periods up to 25 years. The Company classifies these initial, one-time nonrefundable franchise fee contract liabilities as deferred revenue on its consolidated balance sheet. Revenue from merchandise and fixture sales is recognized when control is transferred to the franchisee, which generally occurs upon delivery.
The Company also incurs expenses directly related to the startup of new franchises, which may include finder’s fees, legal and travel costs, expenses related to its ongoing support of the franchises and employee compensation. Accordingly, the Company’s policy is to capitalize any finder’s fee, as an incremental cost, and expense all other costs as incurred. Additionally, the Company amortizes these capitalized costs into expense in the same pattern as the development fee's recording of revenue as described previously. These capitalized costs for the thirteen and thirty-nine weeks ended November 2, 2024 are not material to the financial statements.
The Company reserves for “expected” credit losses on financial instruments and other commitments to extend credit rather than the “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions and reasonable and supportable forecasts. For the thirty-nine weeks ended November 2, 2024 and October 28, 2023, the Company's accounts receivable are net of $6.8 million and $6.2 million, inclusive of the allowance for credit losses and the reserve for the UK's customs authority "HMRC" matter of $3.4 million and $3.5 million, respectively. See Note 12 for further discussion of the HMRC matter.
3. Leases
The majority of the Company's leases relate to retail stores and corporate offices. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. Most new retail store leases have an original term of a five to ten-year base period and may include renewal options to extend the lease term beyond the initial base period. The extension periods are typically much shorter than the original lease term given the Company's strategic decision to maintain a high level of lease optionality. Some leases also include early termination options, which can be exercised under specific conditions. Additionally, the Company may operate stores for a period of time on a month-to-month basis after the expiration of the lease term. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, certain leases contain incentives, such as construction allowances from landlords and/or rent abatements subsequent to taking possession of the leased property.
The table below presents certain information related to the lease costs for operating leases for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023 (in thousands).
| | Thirteen weeks ended | | | Thirty-nine weeks ended | |
| | November 2, 2024 | | | October 28, 2023 | | | November 2, 2024 | | | October 28, 2023 | |
| | | | | | | | | | | | | | | | |
Operating lease costs | | $ | 10,038 | | | $ | 9,261 | | | $ | 29,642 | | | $ | 27,357 | |
Variable lease costs (1) | | | 2,294 | | | | 2,134 | | | | 6,949 | | | | 6,374 | |
Short term lease costs | | | 18 | | | | 34 | | | | 77 | | | | 74 | |
Total Operating Lease costs | | $ | 12,350 | | | $ | 11,429 | | | $ | 36,668 | | | $ | 33,805 | |
| (1) | Variable lease costs consist of leases with variable rent structures, which are intended to increase flexibility in an environment with expected high sales volatility and provide a natural hedge against potential sales declines. |
Other information
The table below presents supplemental cash flow information related to leases for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023 (in thousands).
| | Thirteen weeks ended | | | Thirty-nine weeks ended | |
| | November 2, 2024 | | | October 28, 2023 | | | November 2, 2024 | | | October 28, 2023 | |
Operating cash flows for operating leases | | $ | 10,737 | | | $ | 9,994 | | | $ | 30,852 | | | $ | 29,775 | |
As of November 2, 2024 and October 28, 2023, the weighted-average remaining operating lease term was 5.7 years and 4.0 years, respectively, and the weighted-average discount rate was 7.2% and 6.5%, respectively, for operating leases recognized on the Company's condensed consolidated balance sheets.
The value of our operating lease asset was $91.3 million and $67.8 million as of November 2, 2024 and October 28, 2023, respectively. The increase was driven by the Company entering into leases for new stores as well as securing longer-term extensions for existing stores resulting in contracts with more favorable terms.
For the thirteen and thirty-nine weeks ended November 2, 2024 and the thirteen and thirty-nine weeks ended October 28, 2023 the Company incurred no impairment charges against its right-of-use operating lease assets.
Undiscounted cash flows
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the balance sheet (in thousands).
Operating Leases | | | |
2024 | | $ | 5,439 | |
2025 | | | 34,908 | |
2026 | | | 24,183 | |
2027 | | | 14,147 | |
2028 | | | 8,736 | |
Thereafter | | | 37,086 | |
Total minimum lease payments | | | 124,499 | |
Less: amount of lease payments representing interest | | | (26,149 | ) |
Present value of future minimum lease payments | | | 98,350 | |
Less: current obligations under leases | | | (28,832 | ) |
Long-term lease obligations | | $ | 69,518 | |
As of November 2, 2024, the Company had additional executed leases that had not yet commenced with operating lease liabilities of $26.5 million. These leases are expected to commence in fiscal 2024 and fiscal 2025 with lease terms of three to twenty years.
4. Other Assets
Prepaid expenses and other current assets consist of the following (in thousands):
| | November 2, | | | February 3, | | | October 28, | |
| | 2024 | | | 2024 | | | 2023 | |
Prepaid occupancy (1) | | $ | 2,626 | | | $ | 2,442 | | | $ | 2,414 | |
Prepaid insurance | | | 1,209 | | | | 1,250 | | | | 550 | |
Prepaid taxes (2) | | | 579 | | | | 199 | | | | 4,092 | |
Prepaid gift card fees | | | 571 | | | | 699 | | | | 705 | |
Prepaid royalties | | | 212 | | | | 319 | | | | 540 | |
Other (3) | | | 6,784 | | | | 6,468 | | | | 5,290 | |
Total | | $ | 11,982 | | | $ | 11,377 | | | $ | 13,592 | |
| (1) | Prepaid occupancy consists of prepaid expenses related to variable non-lease components. |
| (2) | Prepaid taxes consist of prepaid federal and state income tax. |
| (3) | Other consists primarily of prepaid expense related to information technology maintenance contracts and software as a service. |
Other non-current assets consist of the following (in thousands):
| | November 2, | | | February 3, | | | October 28, | |
| | 2024 | | | 2024 | | | 2023 | |
Entertainment production asset (1) | | $ | 4,384 | | | $ | 4,734 | | | $ | 6,057 | |
Deferred compensation | | | 1,679 | | | | 2,121 | | | | 875 | |
Other (2) | | | 223 | | | | 311 | | | | 341 | |
Total | | $ | 6,286 | | | $ | 7,166 | | | $ | 7,273 | |
| (1) | Entertainment production asset includes the direct costs, production overhead and development costs in producing entertainment assets such as films or music. |
| (2) | Other consists primarily of deferred financing costs related to the Company's credit facility. |
5. Accrued Expenses
Accrued expenses consist of the following (in thousands):
| | November 2, | | | February 3, | | | October 28, | |
| | 2024 | | | 2024 | | | 2023 | |
Accrued wages, bonuses and related expenses | | $ | 15,310 | | | $ | 14,549 | | | $ | 17,470 | |
Sales and value added taxes payable | | | 2,043 | | | | 2,447 | | | | 2,466 | |
Current income taxes payable | | | 1,869 | | | | 1,602 | | | | 329 | |
Accrued rent and related expenses (1) | | | 772 | | | | 1,356 | | | | 954 | |
Accrued expense - other (2) | | | - | | | | - | | | | 4,100 | |
Total | | $ | 19,994 | | | $ | 19,954 | | | $ | 25,319 | |
| (1) | Accrued rent and related expenses consist of accrued costs associated with non-lease components. |
| (2) | Accrued expense - other consists of accrued costs associated with a legal reserve accrual. |
6. Stock-based Compensation
On April 14, 2020, the Board of Directors (the “Board”) of Build-A-Bear Workshop, Inc. (the “Company”) adopted, subject to stockholder approval, the Build-A-Bear Workshop, Inc. 2020 Omnibus Incentive Plan (the “2020 Incentive Plan”). On June 11, 2020, the Company’s stockholders approved the 2020 Incentive Plan. On April 11, 2023, the Board adopted, subject to stockholder approval, the Build-A-Bear Workshop, Inc. Amended and Restated 2020 Omnibus Incentive Plan (the “Restated 2020 Incentive Plan”). On June 8, 2023, at the Company’s 2023 Annual Meeting of Stockholders, the Company’s stockholders approved the Restated 2020 Incentive Plan. The Restated 2020 Incentive Plan, which is administered by the Compensation and Development Committee of the Board, permits the grant of stock options (including both incentive and non-qualified stock options), stock appreciation rights, other stock-based awards, including restricted stock and restricted stock units, cash-based awards, and performance awards pursuant to the terms of the Restated 2020 Incentive Plan. The Restated 2020 Incentive Plan will terminate on April 11, 2033, unless earlier terminated by the Board. The total number of shares of the Company’s common stock authorized for issuance under the Restated 2020 Incentive Plan increased by 800,000 to a maximum of 1,800,000 since its inception as the 2020 Incentive Plan, subject to customary capitalization adjustments, substitutions of acquired company awards and certain additions of acquired company plan shares, plus shares that are subject to outstanding awards made under the Build-A-Bear Workshop, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) that on or after April 14, 2020 may be forfeited, expire or be settled for cash.
For the thirteen weeks ended November 2, 2024 and October 28, 2023, selling, general and administrative expense included stock-based compensation expense of $0.7 million and $0.7 million, respectively. For the thirty-nine weeks ended November 2, 2024 and October 28, 2023, selling, general, and administrative expense included stock-based compensation expense of $1.7 million and $2.5 million, respectively. As of November 2, 2024, there was $3.4 million of total unrecognized compensation expense related to unvested restricted stock awards which is expected to be recognized over a weighted-average period of 1.8 years.
The following table is a summary of the balances and activity for stock options for the thirty-nine weeks ended November 2, 2024:
| | Options | |
| | Shares | | | Weighted Average Exercise Price | |
Outstanding, February 4, 2024 | | | 12,375 | | | $ | 17.84 | |
Granted | | | - | | | | - | |
Exercised | | | (12,375 | ) | | | 17.84 | |
Forfeited | | | - | | | | - | |
Canceled or expired | | | - | | | | - | |
Outstanding, November 2, 2024 | | | - | | | $ | - | |
The following table is a summary of the balances and activity related to time-based and performance-based restricted stock for the thirty-nine weeks ended November 2, 2024:
| | Time-Based Restricted Stock | | | Performance-Based Restricted Stock | |
| | Shares | | | Weighted Average Grant Date Fair Value | | | Shares | | | Weighted Average Grant Date Fair Value | |
Outstanding, February 4, 2024 (1) | | | 122,609 | | | $ | 18.02 | | | | 185,082 | | | $ | 17.37 | |
Granted (1) | | | 59,823 | | | | 27.18 | | | | 64,619 | | | | 27.61 | |
Vested | | | (81,561 | ) | | | 15.87 | | | | - | | | | - | |
Adjustment for performance achievement | | | - | | | | - | | | | 53,095 | | | | 8.24 | |
Earned and vested | | | - | | | | - | | | | (106,190 | ) | | | 8.24 | |
Forfeited (1) | | | (3,333 | ) | | | 24.75 | | | | (3,333 | ) | | | 24.75 | |
Outstanding, November 2, 2024 (1) | | | 97,538 | | | $ | 25.21 | | | | 193,273 | | | $ | 23.17 | |
| (1) | Performance-based restricted stock outstanding, granted, and forfeited are presented at 100% of target. |
The total fair value of shares vested during the thirty-nine weeks ended November 2, 2024 and October 28, 2023 was $2.2 million and $2.1 million, respectively.
The outstanding performance shares as of November 2, 2024 consist of the following:
| | Performance Shares | |
Unearned shares subject to performance-based restrictions at target: | | | | |
2022 - 2024 consolidated, earnings before interest, taxes, depreciation and amortization (EBITDA) growth objectives | | | 54,596 | |
2022 - 2024 consolidated revenue growth objectives | | | 18,198 | |
2023 - 2025 consolidated pre-tax income growth objectives | | | 36,309 | |
2023 - 2025 consolidated revenue growth objectives | | | 19,551 | |
2024 - 2026 consolidated EBITDA objectives | | | 42,002 | |
2024 - 2026 consolidated, cumulative revenue objectives | | | 22,617 | |
Performance shares outstanding, November 2, 2024 | | | 193,273 | |
7. Income Taxes
The Company's effective tax rate was 24.5% and 24.1% for the thirteen and thirty-nine weeks ended November 2, 2024, respectively, compared to 26.7% and 24.0% for the thirteen and thirty-nine weeks ended October 28, 2023, respectively. The 2024 and 2023 effective tax rates differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the tax impact of equity awards vesting. In the fourth quarter of fiscal 2023, the Company reversed the valuation allowance on deferred tax assets expected to be realized in the U.K. The Company remains in a full valuation in certain other foreign jurisdictions.
8. Stockholders’ Equity
The following table sets forth the changes in stockholders’ equity (in thousands) for the thirteen weeks ended November 2, 2024 and October 28, 2023 (in thousands):
| | For the thirteen weeks ended November 2, 2024 | | | For the thirteen weeks ended October 28, 2023 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common | | | | | | | | | | | Retained | | | | | | | Common | | | | | | | | | | | Retained | | | | | |
| | stock | | | APIC (1) | | | AOCI (2) | | | earnings | | | Total | | | stock | | | APIC (1) | | | AOCI (2) | | | earnings | | | Total | |
Balance, beginning | | $ | 136 | | | $ | 62,831 | | | $ | (11,913 | ) | | $ | 74,737 | | | $ | 125,791 | | | $ | 145 | | | $ | 66,773 | | | $ | (12,017 | ) | | $ | 52,965 | | | $ | 107,866 | |
Shares issued under employee stock plans | | | | | | | | | | | | | | | | | | | - | | | | | | | | 175 | | | | | | | | | | | | 175 | |
Stock-based compensation | | | | | | | 346 | | | | | | | | | | | | 346 | | | | | | | | 363 | | | | | | | | | | | | 363 | |
Shares withheld in lieu of tax withholdings | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | - | |
Share Repurchase | | | (1 | ) | | | (666 | ) | | | | | | | (4,166 | ) | | | (4,833 | ) | | | (1 | ) | | | (670 | ) | | | | | | | (3,369 | ) | | | (4,040 | ) |
Cash Dividends | | | | | | | | | | | | | | | (2,704 | ) | | | (2,704 | ) | | | | | | | | | | | | | | | | | | | - | |
Other | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | - | |
Other comprehensive income (loss) | | | | | | | | | | | 102 | | | | | | | | 102 | | | | | | | | | | | | (302 | ) | | | | | | | (302 | ) |
Net income | | | | | | | | | | | | | | | 9,871 | | | | 9,871 | | | | | | | | | | | | | | | | 7,586 | | | | 7,586 | |
Balance, ending | | $ | 135 | | | $ | 62,511 | | | $ | (11,811 | ) | | $ | 77,738 | | | $ | 128,573 | | | $ | 144 | | | $ | 66,641 | | | $ | (12,319 | ) | | $ | 57,182 | | | $ | 111,648 | |
(1) Additional paid-in capital (“APIC”)
(2) Accumulated other comprehensive loss (“AOCI”)
The following table sets forth the changes in stockholders’ equity (in thousands) for the thirty-nine weeks ended November 2, 2024 and October 28, 2023 (in thousands):
| | For the thirty-nine weeks ended November 2, 2024 | | | For the thirty-nine weeks ended October 28, 2023 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common | | | | | | | | | | | Retained | | | | | | | Common | | | | | | | | | | | Retained | | | | | |
| | stock | | | APIC (1) | | | AOCI (2) | | | earnings | | | Total | | | stock | | | APIC (1) | | | AOCI (2) | | | earnings | | | Total | |
Balance, beginning | | $ | 142 | | | $ | 66,330 | | | $ | (12,082 | ) | | $ | 75,272 | | | $ | 129,662 | | | $ | 148 | | | $ | 69,868 | | | $ | (12,274 | ) | | $ | 61,375 | | | $ | 119,117 | |
Adoption of new accounting standard | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (785 | ) | | | (785 | ) |
Subtotal | | $ | 142 | | | $ | 66,330 | | | $ | (12,082 | ) | | $ | 75,272 | | | $ | 129,662 | | | $ | 148 | | | $ | 69,868 | | | $ | (12,274 | ) | | $ | 60,590 | | | $ | 118,332 | |
Issuance of Restricted Stock | | | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
Shares issued under employee stock plans | | | 2 | | | | 1,094 | | | | | | | | | | | | 1,096 | | | | 4 | | | | 2,436 | | | | | | | | | | | | 2,440 | |
Stock-based compensation | | | | | | | 1,016 | | | | | | | | | | | | 1,016 | | | | | | | | 1,121 | | | | | | | | | | | | 1,121 | |
Shares withheld in lieu of tax withholdings | | | (1 | ) | | | (2,089 | ) | | | | | | | | | | | (2,090 | ) | | | (2 | ) | | | (3,638 | ) | | | | | | | | | | | (3,640 | ) |
Share Repurchase | | | (8 | ) | | | (3,840 | ) | | | | | | | (19,333 | ) | | | (23,181 | ) | | | (6 | ) | | | (3,146 | ) | | | | | | | (12,087 | ) | | | (15,239 | ) |
Other | | | | | | | | | | | | | | | (39 | ) | | | (39 | ) | | | | | | | | | | | | | | | 196 | | | | 196 | |
Dividend | | | | | | | | | | | | | | | (8,269 | ) | | | (8,269 | ) | | | | | | | | | | | | | | | (22,049 | ) | | | (22,049 | ) |
Other comprehensive income (loss) | | | | | | | | | | | 271 | | | | | | | | 271 | | | | | | | | | | | | (45 | ) | | | | | | | (45 | ) |
Net income | | | | | | | | | | | | | | | 30,107 | | | | 30,107 | | | | | | | | | | | | | | | | 30,532 | | | | 30,532 | |
Balance, ending | | $ | 135 | | | $ | 62,511 | | | $ | (11,811 | ) | | $ | 77,738 | | | $ | 128,573 | | | $ | 144 | | | $ | 66,641 | | | $ | (12,319 | ) | | $ | 57,182 | | | $ | 111,648 | |
(1) Additional paid-in capital (“APIC”)
(2) Accumulated other comprehensive loss (“AOCI”)
During the thirteen and thirty-nine weeks ended November 2, 2024, the Company utilized $4.8 million in cash to repurchase 147,917 shares and utilized $23.0 million in cash to repurchase 832,944 shares, respectively. During the quarter, the Company repurchased shares under two separate stock repurchase programs. For the thirteen weeks ending November 2, 2024, the company repurchased 73,274 shares utilizing $2.0 million in cash under the Company's $50.0 million stock repurchase program that was authorized by its Board of Directors on August 31, 2022 (the "August 2022 Stock Repurchase Program"). On September 11, 2024, the Company announced that its Board of Directors terminated the August 2022 Stock Repurchase Program and authorized a new share repurchase program of up to $100 million (the “September 2024 Stock Repurchase Program”). During the thirteen weeks ended November 2, 2024, the Company utilized $2.8 million in cash to repurchase 74,643 shares under the September 2024 Stock Repurchase Program. Since the end of the third fiscal quarter, the Company utilized $0.2 million in cash to repurchase 5,288 shares leaving $97.0 millionavailable under the September 2024 Stock Repurchase Program. For the thirteen and thirty-nine weeks ended November 2, 2024, the Company's Board of Directors authorized cash dividends to shareholders of $2.7 million and $8.3 million, respectively. Additionally, on November 12, 2024, the Board of Directors declared a quarterly cash dividend of $0.20 per share on the issued and outstanding common stock of the company. The dividend will be paid on January 9, 2025, to all stockholders of record as of November 27, 2024.
For the thirty-nine weeks ended October 28, 2023, the Company recorded credit impairment charges of $0.8 million on trade receivables into retained earnings as a result of the adoption of ASC 326 - Credit Impairment.
During the thirteen and thirty-nine weeks ended October 28, 2023, the Company utilized $4.0 million in cash to repurchase 146,028 shares and the Company utilized $15.2 million in cash to repurchase 672,734 shares under the August 2022 Stock Repurchase Program. The Company's Board of Directors also authorized a special cash dividend of $1.50 per share that was paid on April 6, 2023, to all stockholders of record as of March 23, 2023.
9. Income per Share
The following table sets forth the computation of basic and diluted net income per share (in thousands, except share and per share data):
| | Thirteen weeks ended | | | Thirty-nine weeks ended | |
| | November 2, | | | October 28, | | | November 2, | | | October 28, | |
| | 2024 | | | 2023 | | | 2024 | | | 2023 | |
NUMERATOR: | | | | | | | | | | | | | | | | |
Net income | | $ | 9,870 | | | $ | 7,586 | | | $ | 30,107 | | | $ | 30,532 | |
| | | | | | | | | | | | | | | | |
DENOMINATOR: | | | | | | | | | | | | | | | | |
Weighted average number of common shares outstanding - basic | | | 13,425,332 | | | | 14,362,702 | | | | 13,672,416 | | | | 14,413,308 | |
Dilutive effect of share-based awards: | | | 36,651 | | | | 76,093 | | | | 40,045 | | | | 150,666 | |
Weighted average number of common shares outstanding - dilutive | | | 13,461,983 | | | | 14,438,795 | | | | 13,712,461 | | | | 14,563,974 | |
| | | | | | | | | | | | | | | | |
Basic net income per common share | | $ | 0.74 | | | $ | 0.53 | | | $ | 2.20 | | | $ | 2.12 | |
Diluted net income per common share | | $ | 0.73 | | | $ | 0.53 | | | $ | 2.20 | | | $ | 2.10 | |
In calculating the diluted income per share for the thirteen and thirty-nine weeks ended November 2, 2024, there were 1,141 and 29,288 shares of common stock, respectively, that were outstanding at the end of the period that were not included in the computation of diluted income per share due to their anti-dilutive effect. For the thirteen and thirty-nine weeks ended October 28, 2023, there were zero and 43,673 shares of common stock, respectively, that were outstanding at the end of the period that were not included in the computation of diluted income per share due to their anti-dilutive effect.
10. Comprehensive Income
The difference between comprehensive income or loss and net income or loss is the result of foreign currency translation adjustments on the balance sheets of subsidiaries whose functional currency is not the U.S. dollar. The accumulated other comprehensive loss balance on November 2, 2024 and October 28, 2023 was comprised entirely of foreign currency translation. For the thirteen weeks ended November 2, 2024 and October 28, 2023, the Company had no reclassifications out of accumulated other comprehensive loss.
11. Segment Information
The Company’s operations are conducted through three operating segments consisting of direct-to-consumer (“DTC”), commercial and international franchising. The DTC segment includes the operating activities of corporately-managed locations and other retail delivery operations in the U.S., Canada, Ireland and the U.K., including the Company’s e-commerce sites and temporary stores. The commercial segment includes the Company’s transactions with other businesses, mainly comprised of licensing the Company’s intellectual properties for third-party use and wholesale activities. The international franchising segment includes the licensing activities of the Company’s franchise agreements with store locations in select countries in Asia, Australia, the Middle East, Africa, and South America. The operating segments have discrete sources of revenue, different capital structures and different cost structures. These operating segments represent the basis on which the Company’s chief operating decision maker regularly evaluates the business in assessing performance, determining the allocation of resources and the pursuit of future growth opportunities. Accordingly, the Company has determined that each of its operating segments represent a reportable segment. The three reportable segments follow the same accounting policies used for the Company’s consolidated financial statements.
Following is a summary of the financial information for the Company’s reportable segments (in thousands):
|
|
Direct-to- |
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
Consumer |
|
|
Commercial |
|
|
Franchising |
|
|
Total |
|
Thirteen weeks ended November 2, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
|
$ |
109,503 |
|
|
$ |
8,580 |
|
|
$ |
1,347 |
|
|
$ |
119,430 |
|
Income before income taxes |
|
|
8,544 |
|
|
|
4,381 |
|
|
|
156 |
|
|
|
13,081 |
|
Capital expenditures |
|
|
3,871 |
|
|
|
- |
|
|
|
- |
|
|
|
3,871 |
|
Depreciation and amortization |
|
|
3,633 |
|
|
|
55 |
|
|
|
- |
|
|
|
3,688 |
|
Thirteen weeks ended October 28, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
|
$ |
100,411 |
|
|
$ |
6,020 |
|
|
$ |
1,131 |
|
|
$ |
107,562 |
|
Income before income taxes |
|
|
7,233 |
|
|
|
2,740 |
|
|
|
375 |
|
|
|
10,348 |
|
Capital expenditures |
|
|
4,986 |
|
|
|
- |
|
|
|
- |
|
|
|
4,986 |
|
Depreciation and amortization |
|
|
3,152 |
|
|
|
79 |
|
|
|
- |
|
|
|
3,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine weeks ended November 2, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
|
$ |
320,826 |
|
|
$ |
21,858 |
|
|
$ |
3,274 |
|
|
$ |
345,958 |
|
Income before income taxes |
|
|
27,650 |
|
|
|
11,323 |
|
|
|
682 |
|
|
|
39,655 |
|
Capital expenditures |
|
|
9,571 |
|
|
|
- |
|
|
|
- |
|
|
|
9,571 |
|
Depreciation and amortization |
|
|
10,822 |
|
|
|
161 |
|
|
|
- |
|
|
|
10,983 |
|
Thirty-nine weeks ended October 28, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
|
$ |
315,972 |
|
|
$ |
17,686 |
|
|
$ |
3,179 |
|
|
$ |
336,837 |
|
Income before income taxes |
|
|
31,225 |
|
|
|
7,882 |
|
|
|
1,073 |
|
|
|
40,180 |
|
Capital expenditures |
|
|
11,124 |
|
|
|
- |
|
|
|
- |
|
|
|
11,124 |
|
Depreciation and amortization |
|
|
9,266 |
|
|
|
274 |
|
|
|
- |
|
|
|
9,540 |
|
Total Assets as of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2, 2024 |
|
$ |
271,691 |
|
|
$ |
11,405 |
|
|
$ |
2,766 |
|
|
$ |
285,862 |
|
February 3, 2024 |
|
|
262,299 |
|
|
|
8,801 |
|
|
|
1,225 |
|
|
|
272,325 |
|
October 28, 2023 |
|
|
238,604 |
|
|
|
10,753 |
|
|
|
1,186 |
|
|
|
250,543 |
|
The Company’s reportable segments are primarily determined by the types of products and services that they offer. Each reportable segment may operate in many geographic areas. Revenues are recognized in the geographic areas based on the location of the customer or franchisee. The following schedule is a summary of the Company’s sales to external customers and long-lived assets by geographic area (in thousands):
|
|
North |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
America (1) |
|
|
Europe (2) |
|
|
Other (3) |
|
|
Total |
|
Thirteen weeks ended November 2, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
|
$ |
100,835 |
|
|
$ |
16,080 |
|
|
$ |
2,515 |
|
|
$ |
119,430 |
|
Thirteen weeks ended October 28, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
|
$ |
93,431 |
|
|
$ |
13,037 |
|
|
$ |
1,094 |
|
|
$ |
107,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine weeks ended November 2, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
|
$ |
297,052 |
|
|
$ |
44,541 |
|
|
$ |
4,365 |
|
|
$ |
345,958 |
|
Property and equipment, net |
|
|
50,585 |
|
|
|
3,913 |
|
|
|
0 |
|
|
|
54,498 |
|
Thirty-nine weeks ended October 28, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
|
$ |
297,631 |
|
|
$ |
36,822 |
|
|
$ |
2,384 |
|
|
$ |
336,837 |
|
Property and equipment, net |
|
|
48,631 |
|
|
|
3,283 |
|
|
|
0 |
|
|
|
51,914 |
|
For purposes of this table only: |
(1) North America includes corporately-managed locations in the United States and Canada. |
(2) Europe includes corporately-managed locations in the U.K. and Ireland and sales to wholesale customers in Europe. |
(3) Other includes franchise businesses outside of North America and Europe. |
12. Contingencies
In the normal course of business, the Company is subject to legal proceedings, government inquiries and claims, and other commercial disputes. If one or more of these matters has an unfavorable resolution, it is possible that the results of operations, liquidity or financial position of the Company could be materially affected in any particular period. The Company accrues a liability for these types of contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. Gain contingencies are recorded when the underlying uncertainty has been settled.
Assessments made by the U.K. customs authority in 2012 were appealed by the Company, which has paid the disputed duty, strictly under protest, pending the outcome of the continuing dispute, and this is included in receivables, net in the DTC segment. The U.K. customs authority contested the Company's appeal. Rulings by the First Tier Tribunal in November 2019 and Upper Tribunal in March 2021 held that duty was due on some, but not all, of the products at issue. The Company petitioned the Court of Appeal for permission to appeal certain elements of the Upper Tribunal decision, and in early November 2021, a judge granted the Company's petition for permission to appeal those elements of the Upper Tribunal decision on some, but not all, of the grounds of appeal that the Company had put forward. An appeal was heard by the Court of Appeal during the first quarter of fiscal 2022, and the Court of Appeal dismissed the appeal in the third quarter of fiscal 2022. During the fourth quarter of fiscal 2022, the UK Supreme Court declined to hear the appeal. The Company is engaging with the customs authority to attempt to resolve all outstanding issues following the application of the determined principles. The case will return to the lower tribunal for a final ruling if outstanding issues cannot be resolved. The Company maintains a provision against the related receivable, based on a current evaluation of collectability, using the latest facts available in the dispute. As of November 2, 2024, the Company had a gross receivable balance of $4.9 million and a reserve of $3.4 million, leaving a net receivable of $1.5 million. The Company believes that the outcome of this dispute will not have a material adverse impact on the results of operations, liquidity, or financial position of the Company.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Notice Regarding Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties, and we undertake no obligation to update these statements except as required by the federal securities laws. Our actual results may differ materially from the results discussed in the forward-looking statements. These risks and uncertainties include, without limitation, those detailed under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, as filed with the SEC, and include the following:
|
● |
any uncertainty or decline in general global economic conditions, caused by inflation, rising interest rates, geo-political conflicts, or other external factors, could lead to disproportionately reduced discretionary consumer spending and a corresponding reduction in demand for our products and have an adverse effect on our liquidity and profitability; |
|
● |
consumer interests can change rapidly, and our success depends on the ongoing effectiveness of our marketing and online initiatives to build consumer affinity for our brand and drive consumer demand for our products and services; |
|
● |
we depend upon the shopping malls and tourist locations in which our stores are located to attract guests. Continued or further volatility in retail consumer traffic could adversely affect our financial performance and profitability; |
|
● |
our profitability could be adversely affected by fluctuations in petroleum products prices; |
|
● |
our business may be adversely impacted at any time by a variety of significant competitive threats; |
|
● |
global or regional health pandemics or epidemics could negatively impact our business, financial position and results of operations; |
|
● |
if we are unable to generate interest in and demand for our interactive retail experience and products, including being able to identify and respond to consumer preferences in a timely manner, our sales, financial condition and profitability could be adversely affected; |
|
● |
if we are unable to renew, renegotiate or replace our store leases or enter into leases for new stores on favorable terms, or if we violate any of the terms of our current leases, our revenue and profitability could be harmed; |
|
● |
failure to successfully execute our omnichannel and brand expansion strategy and the cost of our investments in e-commerce and digital transformation may materially adversely affect our financial condition and profitability; |
|
● |
we are subject to risks associated with technology and digital operations; |
|
● |
we may not be able to evolve our store locations over time to align with market trends, successfully diversify our store formats and business models in accordance with our strategic goals or otherwise effectively manage our overall portfolio of stores which could adversely affect our ability to grow and could significantly harm our profitability; |
|
● |
our company-owned distribution center that services the majority of our stores in North America and our third-party distribution center providers used in the western U.S. and Europe may be required to close and operations may experience disruptions or may operate inefficiently; |
|
● |
we rely on a few global supply chain vendors to supply substantially all of our materials and merchandise, and significant price increases or any disruption in their ability to deliver materials and merchandise could harm our ability to source products and supply inventory to our stores; |
|
● |
we may not be able to operate our international corporately-managed locations profitably; |
|
● |
our merchandise is manufactured by foreign manufacturers and we transact business in various foreign countries, and the availability and costs of our products, as well as our product pricing, may be negatively affected by risks associated with international manufacturing and trade, foreign currency fluctuations and tariffs; |
|
● |
if we are unable to effectively manage our international partner-operated locations, attract new partners or if the laws relating to our international partners change, our growth and profitability could be adversely affected, and we could be exposed to additional liability; |
|
● |
we are subject to a number of risks related to disruptions, failures or security breaches of our information technology infrastructure. If we improperly obtain or are unable to protect our data or violate privacy or security laws or expectations, we could be subject to liability as well as damage to our reputation; |
|
● |
we may fail to renew, register or otherwise protect our trademarks or other intellectual property and have been sued by third parties for infringement or misappropriation of their proprietary rights, which could be costly, distract our management and personnel and result in the diminution in value of our trademarks and other important intellectual property; |
|
● |
we may suffer negative publicity or be sued if the manufacturers of our merchandise or of Build-A-Bear branded merchandise sold by our licensees ship any products that do not meet current safety standards or production requirements or if such products are recalled or cause injuries; |
|
● |
we may suffer negative publicity or be sued if the manufacturers of our merchandise violate labor laws or engage in practices that consumers believe are unethical; |
|
● |
we may suffer negative publicity or a decrease in sales or profitability if the products from other companies that we sell in our stores do not meet our quality standards or fail to achieve our sales expectations; |
|
● |
we may suffer negative publicity and damage to our reputation if we do not continue to evolve environmental, social, and governance initiatives in a timely manner; |
|
● |
fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline; |
|
● |
fluctuations in our operating results could reduce our cash flow, trigger restrictions under our credit agreement, cause us to be unable to repurchase shares at all, at the times or in the amounts we desire, cause the results of our share repurchase program to not be as beneficial as we would like, or cause us to discontinue our quarterly dividend program; |
|
● |
our relatively low market capitalization can cause the market price of our common stock to become volatile; |
|
● |
our certificate of incorporation and bylaws and Delaware law contain provisions that may prevent or frustrate attempts to replace or remove our current management by our stockholders, even if such replacement or removal may be in our stockholders’ best interests; |
|
● |
we may not be able to operate successfully if we lose key personnel, are unable to hire qualified additional personnel, or experience turnover of our management team; |
|
● |
we may be unsuccessful in acquiring businesses or engaging in other strategic transactions, which may negatively affect our financial condition and profitability. |
Business Overview
Build-A-Bear Workshop, Inc. a Delaware corporation, was formed in 1997 as a mall-based, experiential specialty retailer. Build-A-Bear has evolved to become a beloved multi-generational brand focused on its mission to “add a little more heart to life” where guests of all ages make their own “furry friends” in celebration and commemoration of life moments. Guests create their own stuffed animals by participating in the stuffing, dressing, accessorizing, and naming of their own teddy bears and other plush toys based on the Company’s own intellectual property and in conjunction with a variety of best-in-class licenses. The hands-on and interactive nature of our more than 500 company-owned, partner-operated and franchise experience locations around the world, combined with Build-A-Bear’s pop-culture appeal, often fosters a lasting and emotional brand connection with consumers, and has enabled the Company to expand beyond its retail stores to include e-commerce sales on www.buildabear.com and non-plush branded consumer categories via out-bound licensing agreements with leading manufacturers, as well as the creation of engaging content via Build-A-Bear Entertainment (a subsidiary of Build-A-Bear Workshop, Inc.). Over the last 27 years, Build-A-Bear has become a brand with high consumer awareness, positive affinity, and strong retail influence by leveraging our brand strength to grow our brick-and-mortar retail footprint beyond traditional malls through a range of store sizes, formats and locations including tourist destinations. We are also growing through our websites, which focus on gift-giving, collectible merchandise, and licensed products. In addition to growing our corporately-managed store and e-commerce footprint, we are also growing through third-party operated and franchised stores, particularly for our international expansion. Our ongoing digital transformation, which touches our e-commerce business, consumer loyalty program and digital marketing and content, has led to omni-channel growth over the past several years. Build-A-Bear's pop-culture appeal has played a key role in growing our total addressable market beyond children by adding teens and adults with entertainment and sports licensing, collectible and gifting offerings, as well as by introducing new products and adding categories beyond plush.
We primarily operate through a vertical retail channel with corporately-managed stores that feature a unique combination of experience and product in which guests can “make their own stuffed animals.” We also operate e-commerce sites that focus on gift-giving, collectible merchandise and licensed products that appeal to consumers that have an affinity for characters from a range of entertainment, sports, art, and gaming properties. Our retail stores also act as mini distribution centers that provide efficient omnichannel support for our growing digital demand. The primary consumer target for our brick-and-mortar locations is families with children, while our e-commerce sites focus on collectors and gift givers that are primarily tweens, teens and adults. Additionally, we offer products in non-plush consumer categories via outbound licensing agreements with leading manufacturers.
Our strategy includes leveraging our brand strength to continue to strategically evolve our brick-and-mortar retail footprint beyond traditional malls with a versatile range of formats and locations including tourist destinations, expand into international markets primarily via our partner-operated and franchise store models, and grow our e-commerce business. By leveraging our brand strength and owned intellectual properties through the creation of engaging short-form and long-form content for kids and adults, we endeavor to develop a circle of continuous engagement to increase purchase occasions and to continue to broaden the consumer base beyond children by adding tweens, teens and adults with entertainment and sports licensing, plus collectible and gifting offerings.
As of November 2, 2024, we had 362 corporately-managed stores globally and 4 seasonal locations, 123 partner-operated locations operating through our "third-party retail" model in which we sell our products on a wholesale basis to other companies that execute our retail experience, and 80 international franchised stores, all under the Build-A-Bear Workshop brand. In addition to these stores, we sell products on our company-owned e-commerce sites and third-party marketplace sites, our franchisees sell products through sites that they manage as well as other third-party marketplace sites and other parties sell products on their sites under wholesale agreements.
We operate in three segments that share the same infrastructure, including management, systems, merchandising and marketing, and generate revenues as follows:
|
• |
Direct-to-Consumer (“DTC”) – Corporately-managed retail stores located in the U.S., Canada, the U.K., and Ireland and two e-commerce sites; |
|
• |
Commercial – Transactions with other businesses, mainly comprised of wholesale product sales to third-party retailers and licensing our intellectual property, including entertainment properties, for third-party use; and |
|
• |
International franchising – Royalties as well as products and fixtures sales from other international operations under franchise agreements. |
Selected financial data attributable to each segment for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Business Update
Build-A-Bear Workshop offers interactive entertainment experiences via both physical and e-commerce engagement, targeting a range of consumer segments and purchasing occasions through digitally-driven, diversified omnichannel capabilities. We operate a vertical retail channel with stores that feature a unique combination of experience and product in which guests can "make their own stuffed animals" by participating in the stuffing, dressing, accessorizing, and naming of their teddy bears and other stuffed animals. We also operate e-commerce sites that focus on gift-giving, collectible merchandise and licensed products that appeal to consumers that have an affinity for characters from a range of licensed properties. Over the last 27 years, Build-A-Bear has become a brand with high consumer awareness and positive affinity. We believe there are opportunities to leverage this brand strength, pop-culture status and multi-generational appeal and generate incremental revenue and profits through licensing our intellectual properties through content and entertainment development for kids and adults while also offering products at wholesale and in non-plush consumer categories through outbound licensing agreements with leading manufacturers.
We seek to provide outstanding guest service and experiences across all channels and touch points including our retail locations, our e-commerce sites, our mobile sites and apps as well as traditional, digital and social media. We believe the hands-on and interactive nature of our experience locations, our personal service model and engaging digital shopping experiences result in guests forming an emotional connection with our brand which has multi-generational appeal that captures today’s zeitgeist including desire for engaging experiences, personalization and “DIY” while being recognized as trusted, giving, and a part of pop culture.
We believe that the initiatives and investments that were put in place prior to the pandemic, and in many cases, we accelerated during the pandemic, are driving improved results, as we delivered growth in total revenues and profit in fiscal 2023. To continue to drive revenue and profit growth, we remain focused on our strategic priorities, which are centered primarily on three key areas:
|
• |
The global expansion of our unique experience locations. During the first thirty-nine weeks of fiscal 2024, we opened a net 40 Build-A-Bear Workshop retail experience locations, through a combination of corporately-managed, third-party operated, and franchise business models. In fiscal 2024, we expect net new unit growth of at least 65 locations in North America and internationally through our three store business models. We have made a concerted effort to shift to non-traditional locations, including family-centric tourist and hospitality sites, as well as partner-operated and franchise locations, and now have more than a third of total stores in non-traditional settings. While tourist sites have been and will remain a critical part of our location expansion strategy, recent research data supports our opportunity to reengage in profitable expansion in traditional locations on a more localized level, particularly given the numerous and flexible corporate store models we have developed in the past few years. We also continue to develop innovative experiences to expand our brand reach, including Build-A-Bear vending machines, also known as ATMs or automatic teddy machines. |
|
|
|
|
• |
Accelerate our comprehensive digital transformation. In addition to growing our e-commerce channel, this includes our marketing and loyalty programs, including our Count Your Candles offer, and content and entertainment initiatives, such as our first-ever animated theatrical film in 2023 “Glisten and the Merry Mission.” Our digital transformation is designed to elevate our business efficiency, integrate our customer communications to acquire new customers and increase purchase occasions, and expand our total addressable market by reaching beyond our core kid base and to continue to acquire new tween, teen and adult consumers by new offerings including gifting and personalization programs. In September 2024, we created a new position of Chief Revenue Officer to further align our operating structure with our digital strategy. |
|
|
|
|
• |
Drive profitable growth through investment initiatives while maintaining a commitment to return capital to shareholders. As corporate store operating margins have remained robust from higher levels of revenue combined with disciplined expense management, particularly considering recent inflationary pressures, wage increases and supply chain challenges, and as we continue to evolve our real estate portfolio with new locations and formats, plus shift to asset-light business models, the company’s cash flows have meaningfully improved. This higher-level of cash flows has been used to increase support for key initiatives to deliver long-term profitable growth, while also returning capital to shareholders through dividends and share repurchases. The Company returned capital to shareholders through two special dividends paid December 27, 2021, and April 6, 2023, totaling $42 million, through share repurchases from a $25 million stock repurchase program that was adopted in November 2021, through a $50 million stock repurchase program announced in August 2022, and through a Board-approved $100 million stock repurchase program announced in September 2024. Furthermore, the Company announced the initiation of a quarterly dividend program on March 13, 2024, and during the first, second and third quarters of fiscal 2024, the Company declared cash dividends of $0.20 per share, totaling $2.9 million, $2.7 million and $2.7 million, respectively. Additionally, the Board of Directors declared a quarterly cash dividend of $0.20 per share on the issued and outstanding common stock of the company, which will be paid on January 9, 2025, to all stockholders of record as of November 27, 2024. |
Retail Stores:
Corporately-Managed Locations:
The table below sets forth the number of Build-A-Bear Workshop corporately-managed stores in North America and Europe for the periods presented:
|
|
Thirty-nine weeks ended |
|
|
|
November 2, 2024 |
|
|
October 28, 2023 |
|
|
|
North America |
|
|
Europe |
|
|
Total |
|
|
North America |
|
|
Europe |
|
|
Total |
|
Beginning of period |
|
|
320 |
|
|
|
39 |
|
|
|
359 |
|
|
|
312 |
|
|
|
38 |
|
|
|
350 |
|
Opened |
|
|
8 |
|
|
|
1 |
|
|
|
9 |
|
|
|
6 |
|
|
|
1 |
|
|
|
7 |
|
Closed |
|
|
(4 |
) |
|
|
(2 |
) |
|
|
(6 |
) |
|
|
- |
|
|
|
(1 |
) |
|
|
|