0001113809 BUILD-A-BEAR WORKSHOP INC false --02-01 Q3 2024 0.01 0.01 0.01 15,000,000 15,000,000 15,000,000 0 0 0 0 0 0 0.01 0.01 0.01 50,000,000 50,000,000 50,000,000 13,445,191 13,445,191 14,172,362 14,172,362 14,391,876 14,391,876 3 5 10 0 0 0 0 3 20 21 January 9, 2025 November 27, 2024 April 6, 2023 March 23, 2023 0 0 3 3 false false false October 8, 2024 Sharon John President and Chief Executive Officer true October 10, 2024 Voin Todorovic Chief Financial Officer true October 14, 2024 J. Christopher Hurt Chief Operations Officer true 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. 00011138092024-02-042024-11-02 xbrli:shares 00011138092024-12-09 iso4217:USD 00011138092024-11-02 00011138092024-02-03 00011138092023-10-28 iso4217:USDxbrli:shares 0001113809us-gaap:RetailMember2024-08-042024-11-02 0001113809us-gaap:RetailMember2023-07-302023-10-28 0001113809us-gaap:RetailMember2024-02-042024-11-02 0001113809us-gaap:RetailMember2023-01-292023-10-28 0001113809bbw:CommercialProductAndServiceMember2024-08-042024-11-02 0001113809bbw:CommercialProductAndServiceMember2023-07-302023-10-28 0001113809bbw:CommercialProductAndServiceMember2024-02-042024-11-02 0001113809bbw:CommercialProductAndServiceMember2023-01-292023-10-28 0001113809bbw:InternationalFranchisingMember2024-08-042024-11-02 0001113809bbw:InternationalFranchisingMember2023-07-302023-10-28 0001113809bbw:InternationalFranchisingMember2024-02-042024-11-02 0001113809bbw:InternationalFranchisingMember2023-01-292023-10-28 00011138092024-08-042024-11-02 00011138092023-07-302023-10-28 00011138092023-01-292023-10-28 00011138092023-01-28 xbrli:pure 0001113809us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMemberbbw:DirecttoconsumerReportingSegmentMember2024-08-042024-11-02 utr:Y 0001113809bbw:ScenarioChangeInGiftCardBreakageRateMember2024-08-042024-11-02 0001113809bbw:InternationalFranchisingMember2024-11-02 0001113809srt:MinimumMember2024-11-02 0001113809srt:MaximumMember2024-11-02 0001113809us-gaap:OperatingLeaseLeaseNotYetCommencedMember2024-11-02 0001113809bbw:IncentivePlan2020Membersrt:ScenarioForecastMember2033-04-112033-04-11 0001113809bbw:IncentivePlan2020Membersrt:ScenarioForecastMember2033-04-11 0001113809bbw:OptionsAndRestrictedStockMember2024-07-302024-11-02 0001113809bbw:OptionsAndRestrictedStockMember2023-07-302023-10-28 0001113809bbw:OptionsAndRestrictedStockMember2024-02-042024-11-02 0001113809bbw:OptionsAndRestrictedStockMember2023-01-292023-10-28 0001113809us-gaap:RestrictedStockMember2024-11-02 0001113809us-gaap:RestrictedStockMember2024-02-042024-11-02 0001113809us-gaap:RestrictedStockMember2024-02-03 0001113809us-gaap:PerformanceSharesMember2024-02-03 0001113809us-gaap:PerformanceSharesMember2024-02-042024-11-02 0001113809us-gaap:PerformanceSharesMember2024-11-02 0001113809bbw:TimebasedAndPerformancebasedSharesMember2024-02-042024-11-02 0001113809bbw:TimebasedAndPerformancebasedSharesMember2023-01-292023-10-28 0001113809us-gaap:PerformanceSharesMemberbbw:VestingUponAchievementOf20222024ConsolidatedCumulativeEarningsBeforeInterestTaxesDepreciationAndAmortizationObjectivesMember2024-11-02 0001113809us-gaap:PerformanceSharesMemberbbw:VestingUponAchievementOf20222024ConsolidatedGrowthRevenueObjectivesMember2024-11-02 0001113809us-gaap:PerformanceSharesMemberbbw:VestingUponAchievementOf20232025PretaxIncomeGrowthObjectivesMember2024-11-02 0001113809us-gaap:PerformanceSharesMemberbbw:VestingUponAchievementOf20232025ConsolidatedRevenueGrowthObjectivesMember2024-11-02 0001113809us-gaap:PerformanceSharesMemberbbw:VestingUponAchievementOf20242026ConsolidatedCumulativeEarningsBeforeInterestTaxesDepreciationAndAmortizationObjectivesMember2024-11-02 0001113809us-gaap:PerformanceSharesMemberbbw:VestingUponAchievementOf20242026CumulativeRevenueObjectivesMember2024-11-02 0001113809us-gaap:CommonStockMember2024-08-03 0001113809us-gaap:AdditionalPaidInCapitalMember2024-08-03 0001113809us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-08-03 0001113809us-gaap:RetainedEarningsMember2024-08-03 00011138092024-08-03 0001113809us-gaap:CommonStockMember2023-07-29 0001113809us-gaap:AdditionalPaidInCapitalMember2023-07-29 0001113809us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-07-29 0001113809us-gaap:RetainedEarningsMember2023-07-29 00011138092023-07-29 0001113809us-gaap:AdditionalPaidInCapitalMember2023-07-302023-10-28 0001113809us-gaap:AdditionalPaidInCapitalMember2024-08-042024-11-02 0001113809us-gaap:CommonStockMember2024-08-042024-11-02 0001113809us-gaap:RetainedEarningsMember2024-08-042024-11-02 0001113809us-gaap:CommonStockMember2023-07-302023-10-28 0001113809us-gaap:RetainedEarningsMember2023-07-302023-10-28 0001113809us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-08-042024-11-02 0001113809us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-07-302023-10-28 0001113809us-gaap:CommonStockMember2024-11-02 0001113809us-gaap:AdditionalPaidInCapitalMember2024-11-02 0001113809us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-11-02 0001113809us-gaap:RetainedEarningsMember2024-11-02 0001113809us-gaap:CommonStockMember2023-10-28 0001113809us-gaap:AdditionalPaidInCapitalMember2023-10-28 0001113809us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-10-28 0001113809us-gaap:RetainedEarningsMember2023-10-28 0001113809us-gaap:CommonStockMember2024-02-03 0001113809us-gaap:AdditionalPaidInCapitalMember2024-02-03 0001113809us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-02-03 0001113809us-gaap:RetainedEarningsMember2024-02-03 0001113809us-gaap:CommonStockMember2023-01-28 0001113809us-gaap:AdditionalPaidInCapitalMember2023-01-28 0001113809us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-28 0001113809us-gaap:RetainedEarningsMember2023-01-28 0001113809us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2023-01-28 0001113809us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2023-01-28 0001113809us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:CommonStockMember2024-02-03 0001113809us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AdditionalPaidInCapitalMember2024-02-03 0001113809us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2024-02-03 0001113809us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:RetainedEarningsMember2024-02-03 0001113809us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember2024-02-03 0001113809us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:CommonStockMember2023-01-28 0001113809us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AdditionalPaidInCapitalMember2023-01-28 0001113809us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-28 0001113809us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:RetainedEarningsMember2023-01-28 0001113809us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember2023-01-28 0001113809us-gaap:CommonStockMember2024-02-042024-11-02 0001113809us-gaap:AdditionalPaidInCapitalMember2024-02-042024-11-02 0001113809us-gaap:CommonStockMember2023-01-292023-10-28 0001113809us-gaap:AdditionalPaidInCapitalMember2023-01-292023-10-28 0001113809us-gaap:RetainedEarningsMember2024-02-042024-11-02 0001113809us-gaap:RetainedEarningsMember2023-01-292023-10-28 0001113809us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-02-042024-11-02 0001113809us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-292023-10-28 0001113809bbw:ShareRepurchaseProgramMember2024-08-042024-11-02 0001113809bbw:ShareRepurchaseProgramMember2024-02-042024-11-02 0001113809bbw:ShareRepurchaseProgram2022Member2024-08-042024-11-02 0001113809bbw:ShareRepurchaseProgram2022Member2022-08-31 0001113809bbw:TheSeptember2024StockRepurchaseProgramMember2024-09-11 0001113809bbw:TheSeptember2024StockRepurchaseProgramMember2024-08-042024-11-02 0001113809bbw:TheSeptember2024StockRepurchaseProgramMemberus-gaap:SubsequentEventMember2024-11-032024-12-12 0001113809bbw:TheSeptember2024StockRepurchaseProgramMemberus-gaap:SubsequentEventMember2024-12-12 0001113809bbw:TheSeptember2024StockRepurchaseProgramMember2024-02-042024-11-02 0001113809bbw:O2024Q4DividendsMemberbbw:TheSeptember2024StockRepurchaseProgramMemberus-gaap:SubsequentEventMember2024-11-12 thunderdome:item 0001113809bbw:O2024Q4DividendsMemberbbw:TheSeptember2024StockRepurchaseProgramMemberus-gaap:SubsequentEventMember2024-11-122024-11-12 0001113809bbw:ShareRepurchaseProgram2022Member2023-07-302023-10-28 0001113809bbw:ShareRepurchaseProgram2022Member2023-01-292023-10-28 0001113809bbw:S2023H2DividendsMember2023-04-06 0001113809bbw:S2023H2DividendsMember2023-01-292023-10-28 0001113809us-gaap:EmployeeStockOptionMember2024-08-042024-11-02 0001113809us-gaap:EmployeeStockOptionMember2024-02-042024-11-02 0001113809us-gaap:EmployeeStockOptionMember2023-07-302023-10-28 0001113809us-gaap:EmployeeStockOptionMember2023-01-292023-10-28 0001113809bbw:DirectToConsumerMember2024-08-032024-11-02 0001113809bbw:CommercialMember2024-08-032024-11-02 0001113809bbw:InternationalFranchisingMember2024-08-032024-11-02 00011138092024-08-032024-11-02 0001113809bbw:DirectToConsumerMember2023-07-302023-10-28 0001113809bbw:CommercialMember2023-07-302023-10-28 0001113809bbw:InternationalFranchisingMember2023-07-302023-10-28 0001113809bbw:DirectToConsumerMember2024-02-042024-11-02 0001113809bbw:CommercialMember2024-02-042024-11-02 0001113809bbw:InternationalFranchisingMember2024-02-042024-11-02 0001113809bbw:DirectToConsumerMember2023-01-292023-10-28 0001113809bbw:CommercialMember2023-01-292023-10-28 0001113809bbw:InternationalFranchisingMember2023-01-292023-10-28 0001113809bbw:DirectToConsumerMember2024-11-02 0001113809bbw:CommercialMember2024-11-02 0001113809bbw:DirectToConsumerMember2024-02-03 0001113809bbw:CommercialMember2024-02-03 0001113809bbw:InternationalFranchisingMember2024-02-03 0001113809bbw:DirectToConsumerMember2023-10-28 0001113809bbw:CommercialMember2023-10-28 0001113809bbw:InternationalFranchisingMember2023-10-28 0001113809srt:NorthAmericaMember2024-08-042024-11-02 0001113809srt:EuropeMember2024-08-042024-11-02 0001113809bbw:OtherGeographicRegionMember2024-08-042024-11-02 0001113809srt:NorthAmericaMember2023-07-302023-10-28 0001113809srt:EuropeMember2023-07-302023-10-28 0001113809bbw:OtherGeographicRegionMember2023-07-302023-10-28 0001113809srt:NorthAmericaMember2024-02-042024-11-02 0001113809srt:EuropeMember2024-02-042024-11-02 0001113809bbw:OtherGeographicRegionMember2024-02-042024-11-02 0001113809srt:NorthAmericaMember2024-11-02 0001113809srt:EuropeMember2024-11-02 0001113809bbw:OtherGeographicRegionMember2024-11-02 0001113809srt:NorthAmericaMember2023-01-292023-10-28 0001113809srt:EuropeMember2023-01-292023-10-28 0001113809bbw:OtherGeographicRegionMember2023-01-292023-10-28 0001113809srt:NorthAmericaMember2023-10-28 0001113809srt:EuropeMember2023-10-28 0001113809bbw:OtherGeographicRegionMember2023-10-28 0001113809bbw:BBWSharonJohnMember2024-08-042024-11-02 0001113809bbw:BBWSharonJohnMember2024-11-02 0001113809bbw:BBWVoinTodorovicMember2024-08-042024-11-02 0001113809bbw:BBWVoinTodorovicMember2024-11-02 0001113809bbw:BBWJChristopherHurtMember2024-08-042024-11-02 0001113809bbw:BBWJChristopherHurtMember2024-11-02
 

 

 

 



 

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

 

 

Page

Part I Financial Information

 

 

 

 

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

Item 4.

Controls and Procedures

25

 

Part II Other Information

 

 

 

Item 1A.

Risk Factors

26

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

 

 

Item 6.

Exhibits

27

 

 

Signatures

28

 

 

 

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. 

  

7

 
 

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. 

 

8

 
 

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.

 

9

 
 

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.

 

10

 
 

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.

 

11

 
 

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.

    

12

 
 

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.

  

13

 
 

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.

 

14

 
 

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.

 

15

 
 

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 )     (1 )