Build-A-Bear Workshop Inc 10-Q for FY2022 Q1
Build-A-Bear Workshop Inc (BBW)
About this 10-Q
Build-A-Bear Workshop Inc filed this 10-Q on June 10, 2021, covering the quarter ended May 1, 2021 (FY2022 Q1).
Headline figures
Quarter ended May 1, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $91.69M
- up 96.7% from $46.62M a year earlier
- Net income
- $10.38M
- compared with a net loss of $21.2M a year earlier
- Diluted EPS
- $0.66
- compared with -$1.42 a year earlier
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|
|
|
|
| For the quarterly period ended |
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:
BUILD-A-BEAR WORKSHOP, INC.
(Exact Name of Registrant as Specified in Its Charter)
| | |
| (State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
|
|
|
| | |
| (Address of Principal Executive Offices) | (Zip Code) |
(
(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 |
| | | |
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.
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).
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 ☐ |
|
|
|
| | 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 14(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
As of June 7, 2021, there were
INDEX TO FORM 10-Q
|
|
Page |
|
| Part I Financial Information |
|
|
|
|
|
|
|
|
||
|
|
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) |
|
|
|
||
|
|
||
|
|
|
|
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
||
|
|
|
|
|
|
|
|
|
|
||
| Part II Other 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)
| May 1, | January 30, | May 2, | ||||||||||
| 2021 | 2021 | 2020 | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Inventories, net | ||||||||||||
| Receivables, net | ||||||||||||
| Prepaid expenses and other current assets | ||||||||||||
| Total current assets | ||||||||||||
| Operating lease right-of-use asset | ||||||||||||
| Property and equipment, net | ||||||||||||
| Other assets, net | ||||||||||||
| Total Assets | $ | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | $ | $ | |||||||||
| Accrued expenses | ||||||||||||
| Operating lease liability short term | ||||||||||||
| Gift cards and customer deposits | ||||||||||||
| Deferred revenue and other | ||||||||||||
| Total current liabilities | ||||||||||||
| Operating lease liability long term | ||||||||||||
| Deferred franchise revenue | ||||||||||||
| Other liabilities | ||||||||||||
| Stockholders' equity: | ||||||||||||
| Preferred stock, par value $, Shares authorized: ; shares issued or outstanding at May 1, 2021, January 30, 2021 and May 2, 2020 | ||||||||||||
| Common stock, par value $, Shares authorized: ; Issued and outstanding: , and shares, respectively | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Retained earnings | ||||||||||||
| Total stockholders' equity | ||||||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands, except share and per share data)
| Thirteen weeks ended |
||||||||
| May 1, |
May 2, |
|||||||
| 2021 |
2020 |
|||||||
| Revenues: |
||||||||
| Net retail sales |
$ | $ | ||||||
| Commercial revenue |
||||||||
| International franchising |
||||||||
| Total revenues |
||||||||
| Costs and expenses: |
||||||||
| Cost of merchandise sold - retail |
||||||||
| Store asset impairment |
||||||||
| Cost of merchandise sold - commercial |
||||||||
| Cost of merchandise sold - international franchising |
||||||||
| Total cost of merchandise sold |
||||||||
| Consolidated gross profit |
||||||||
| Selling, general and administrative expense |
||||||||
| Interest expense (income), net |
( |
) | ||||||
| Income (loss) before income taxes |
( |
) | ||||||
| Income tax expense |
||||||||
| Net income (loss) |
$ | $ | ( |
) | ||||
| Foreign currency translation adjustment |
||||||||
| Comprehensive income (loss) |
$ | $ | ( |
) | ||||
| Income (loss) per common share: |
||||||||
| Basic |
$ | $ | ( |
) | ||||
| Diluted |
$ | $ | ( |
) | ||||
| Shares used in computing common per share amounts: |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
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)
| Thirteen weeks ended |
||||||||
| May 1, |
May 2, |
|||||||
| 2021 |
2020 |
|||||||
| Cash flows provided by (used in) operating activities: |
||||||||
| Net income (loss) |
$ | $ | ( |
) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization | ||||||||
| Share-based and performance-based stock compensation | ||||||||
| Impairment of right-of-use assets and fixed assets | ||||||||
| Deferred taxes | ||||||||
| Provision for doubtful accounts | ||||||||
| Gain on disposal of property and equipment | ( |
) | ( |
) | ||||
| Change in assets and liabilities: |
||||||||
| Inventories, net | ( |
) | ||||||
| Receivables, net | ( |
) | ||||||
| Prepaid expenses and other assets | ( |
) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Operating leases | ( |
) | ||||||
| Gift cards and customer deposits | ( |
) | ( |
) | ||||
| Deferred revenue | ( |
) | ||||||
| Net cash provided by (used in) operating activities |
( |
) | ||||||
| Cash flows used in investing activities: |
||||||||
| Purchases of property and equipment | ( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows used in financing activities: |
||||||||
| Proceeds from the exercise of employee stock options, net of tax withholding obligation | ( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Effect of exchange rates on cash | ||||||||
| Increase (decrease) in cash, cash equivalents, and restricted cash | ( |
) | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash from long-term deposits | $ | $ | ||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
| Net cash received (paid) during the period for income taxes | $ | $ | ( |
) | ||||
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 January 30, 2021 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 January 30, 2021, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2021.
COVID-19 Pandemic
In March 2020, the World Health Organization announced that COVID-19 is a global pandemic and the Company's results of operations in fiscal 2020 ended January 30, 2021 were significantly negatively impacted. The beginning of fiscal 2021 saw the Company's United States store portfolio open and operating while its stores in the United Kingdom, Canada, and Ireland remained temporarily closed. In April 2021, stores in the United Kingdom reopened as the government lifted lockdown restrictions resulting in almost all of the Company's stores operating as the end of the 2021 first fiscal quarter. The majority of the Company's Canadian stores remained temporarily closed at the end of the fiscal quarter as government restrictions continued.
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 January 30, 2021.
Government Grants
As a result of the pandemic, governments enacted relief legislation and stimulus packages to help combat the economic effects through such things as payroll expense reimbursement and business and restart grants. Due to the nature of these grants relating to income, they can be presented in one of two ways: (1) a credit in the income statement under a general heading such as "other income" or (2) as a reduction to the related expense. The Company applied for reimbursement of payroll expenses in certain jurisdictions through COVID-19 related government programs for payroll paid to employees who were paid while not providing services to the Company and for business and restart grants from the United Kingdom government for businesses in the retail, hospitality and leisure sectors. The Company recorded a reduction to expenses of $
Entertainment Production Costs
Costs of producing entertainment assets, which include direct costs, production overhead and development costs, are capitalized when incurred and are stated at the lower of cost, less accumulated amortization, or fair value. Costs of entertainment
productions are subject to recoverability assessments, which compare the estimated fair values with the unamortized cost, whenever events or changes in circumstances indicate that the fair value of the film may be less than the unamortized cost. The fair value is determined based on a discounted cash flow analysis of the cash flows directly attributable to the entertainment assets. The amount by which the unamortized costs of entertainment assets exceed their estimated fair values are written off. As of May 1, 2021 and May 2, 2020, the Company had capitalized entertainment production costs of $
2. Revenue
Nearly all 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
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 online sales. 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 sales, 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, including any related gift card discounts, is deferred for single transactions until redemption. Historically, the vast majority of gift card redemptions have occurred within years of acquisition and approximately
The Company’s commercial segment includes transactions with other businesses and are 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
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, 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.
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 to -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 giving 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 weeks ended May 1, 2021 and May 2, 2020 (in thousands).
| Thirteen weeks ended | ||||||||
| May 1, 2021 | May 2, 2020 | |||||||
| Operating lease costs | ||||||||
| Variable lease costs | ||||||||
| Short term lease costs | ||||||||
| Total Operating Lease costs | $ | $ | ||||||
Other information
The table below presents supplemental cash flow information related to leases for the thirteen weeks ended May 1, 2021 and May 2, 2020 (in thousands).
| Thirteen weeks ended | ||||||||
| May 1, 2021 | May 2, 2020 | |||||||
| Operating cash flows for operating leases | ||||||||
Operating cash flow for the fiscal 2021 first quarter exceeded expense recorded for the same period, which is expected to continue for the remainder of fiscal 2021, as the Company's deferred rent obligations obtained during rent negotiations in fiscal 2020 are to be paid during fiscal 2021. The Company has approximately $
As of May 1, 2021 and May 2, 2020, the weighted-average remaining operating lease term was
For the thirteen weeks ended May 1, 2021, the Company did incur impairment charges against its right-of-use operating lease assets. For the thirteen weeks ended May 2, 2020, the Company incurred right-of-use asset impairment charges of $
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 | ||||
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less: amount of lease payments representing interest | ( | ) | ||
| Present value of future minimum lease payments | ||||
| Less: current obligations under leases | ( | ) | ||
| Long-term lease obligations | $ | |||
As of May 1, 2021, the Company had an additional executed lease that had not yet commenced with operating lease liabilities of $
4. Other Assets
Prepaid expenses and other current assets consist of the following (in thousands):
| May 1, | January 30, | May 2, | ||||||||||
| 2021 | 2021 | 2020 | ||||||||||
| Prepaid occupancy (1) | $ | $ | $ | |||||||||
| Prepaid taxes (2) | ||||||||||||
| Prepaid insurance | ||||||||||||
| Prepaid gift card fees | ||||||||||||
| Other (3) | ||||||||||||
| Total | $ | $ | $ | |||||||||
| (1) | Prepaid occupancy consists of prepaid expenses related to non-lease components. | |
| (2) | Prepaid taxes consists of prepaid federal and state income tax and other taxes. | |
| (3) | Other consists primarily of prepaid expense related to IT maintenance contracts and software as a service. |
Other non-current assets consist of the following (in thousands):
| May 1, | January 30, | May 2, | ||||||||||
| 2021 | 2021 | 2020 | ||||||||||
| Entertainment production asset | $ | $ | $ | |||||||||
| Deferred compensation | ||||||||||||
| Other (1) | ||||||||||||
| Total | $ | $ | $ | |||||||||
| (1) | 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):
| May 1, | January 30, | May 2, | ||||||||||
| 2021 | 2021 | 2020 | ||||||||||
| Accrued wages, bonuses and related expenses | $ | $ | $ | |||||||||
| Sales and value added taxes payable | ||||||||||||
| Accrued rent and related expenses (1) | ||||||||||||
| Current income taxes payable | ||||||||||||
| Total | $ | $ | $ | |||||||||
| (1) | Accrued rent and related expenses consist of accrued costs associated with non-lease components. |
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, at the Company’s 2020 Annual Meeting of Stockholders (the “Annual Meeting”), the Company’s stockholders approved the 2020 Incentive Plan. The 2020 Incentive Plan, which is administered by the Compensation and Development Committee of the Board (the "Compensation Committee", 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 2020 Incentive Plan. The 2020 Incentive Plan will terminate on April 14, 2030, unless terminated earlier by the Board. The number of shares of the Company’s common stock authorized for issuance under the 2020 Incentive Plan is
For the thirteen weeks ended May 1, 2021 and May 2, 2020, Selling, general and administrative expense included $
The following table is a summary of the balances and activity for stock options for the thirteen weeks ended May 1, 2021:
| Options | ||||||||
| Shares | Weighted Average Exercise Price | |||||||
| Outstanding, January 30, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited | ||||||||
| Canceled or expired | ( | ) | ||||||
| Outstanding, May 1, 2021 | $ | |||||||
The following table is a summary of the balances and activity related to time-based and performance-based restricted stock for the thirteen weeks ended May 1, 2021:
| Time-Based Restricted Stock | Performance-Based Restricted Stock | |||||||||||||||
| Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | |||||||||||||
| Outstanding, January 30, 2021 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Vested | ( | ) | ( | ) | ||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Canceled or expired | ( | ) | ||||||||||||||
| Outstanding, May 1, 2021 | $ | $ | ||||||||||||||
The total fair value of shares vested during the thirteen weeks ended May 1, 2021 and May 2, 2020 was $
In April 2021, the Committee awarded -year performance-based restricted stock, established specific profitability and revenue objectives for fiscal 2021, 2022, and 2023, and assigned a weighting to each objective. Profitability will be measured by the Company’s achievement of established cumulative consolidated earnings before interest, taxes and depreciation and amortization (EBITDA) goals. Revenue will be measured by the Company's achievement of revenue growth, by meeting established compound annual growth rate targets for total web demand sales or cumulative total revenue objectives.
The outstanding performance shares as of May 1, 2021 consist of the following:
| Performance Shares | ||||
| Unearned shares subject to performance-based restrictions at target: | ||||
| 2019 - 2021 consolidated pre-tax income growth objectives | ||||
| 2020 - 2022 consolidated liquidity and strategic performance objectives | ||||
| 2020 - 2022 consolidated earnings before interest and taxes (EBIT) objectives | ||||
| 2021 - 2023 consolidated, cumulative earnings before interest, taxes, depreciation and amortization objectives | ||||
| 2021 - 2023 consolidated revenue growth objectives | ||||
| Performance shares outstanding, May 1, 2021 | ||||
7. Income Taxes
The Company's effective tax rate was
8. Stockholders’ Equity
The following table sets forth the changes in stockholders’ equity (in thousands) for the thirteen weeks ended May 1, 2021 and May 2, 2020 (in thousands):
| For the thirteen weeks ended May 1, 2021 | For the thirteen weeks ended May 2, 2020 | |||||||||||||||||||||||||||||||||||||||
| Common | Retained | Common | Retained | |||||||||||||||||||||||||||||||||||||
| stock | APIC (1) | AOCI (2) | earnings | Total | stock | APIC (1) | AOCI (2) | earnings | Total | |||||||||||||||||||||||||||||||
| Balance, beginning | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||
| Issuance of restricted/performance stock | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||||||
| Shares withheld in lieu of tax withholdings | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Other | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, ending | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||
(1) - Additional paid-in capital (“APIC”)
(2) - Accumulated other comprehensive income (loss) (“AOCI”)
9. Income per Share
The following table sets forth the computation of basic and diluted net income/(loss) per share (in thousands, except share and per share data):
| Thirteen weeks ended | ||||||||
| May 1, | May 2, | |||||||
| 2021 | 2020 | |||||||
| NUMERATOR: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| DENOMINATOR: | ||||||||
| Weighted average number of common shares outstanding - basic | ||||||||
| Dilutive effect of share-based awards: | ||||||||
| Weighted average number of common shares outstanding - dilutive | ||||||||
| Basic income (loss) per common share attributable to Build-A-Bear Workshop, Inc. stockholders | $ | $ | ( | ) | ||||
| Diluted income (loss) per common share attributable to Build-A-Bear Workshop, Inc. stockholders | $ | $ | ( | ) | ||||
In calculating the diluted income per share for the thirteen weeks ended May 1, 2021, options to purchase
10. Comprehensive Income (Loss)
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 income (loss) balance at May 1, 2021 and May 2, 2020 was comprised entirely of foreign currency translation. For the thirteen weeks ended May 1, 2021 and May 2, 2020, the Company had
11. Segment Information
The Company’s operations are conducted through 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 United States (U.S.), Canada, China, Ireland and the United Kingdom (“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 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 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 May 1, 2021 | ||||||||||||||||
| Net sales to external customers | $ | $ | $ | $ | ||||||||||||
| Income before income taxes | ( | ) | ||||||||||||||
| Capital expenditures | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Thirteen weeks ended May 2, 2020 | ||||||||||||||||
| Net sales to external customers | $ | $ | $ | $ | ||||||||||||
| (Loss) Income before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Capital expenditures | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total Assets as of: | ||||||||||||||||
| May 1, 2021 | $ | $ | $ | $ | ||||||||||||
| May 2, 2020 | ||||||||||||||||
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 May 1, 2021 | ||||||||||||||||
| Net sales to external customers | $ | $ | $ | $ | ||||||||||||
| Property and equipment, net | ||||||||||||||||
| Thirteen weeks ended May 2, 2020 | ||||||||||||||||
| Net sales to external customers | $ | $ | $ | $ | ||||||||||||
| Property and equipment, net | ||||||||||||||||
| 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. |
| (3) Other includes franchise businesses outside of North America and Europe and includes a corporately-managed location in China that recently closed. |
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 trial court 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 intends to petition the Court of Appeals directly for leave to proceed with an appeal. 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 May 1, 2021, the Company had a gross receivable balance of $
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 January 30, 2021, as filed with the SEC, and include the following:
|
|
● |
our business, operations and financial results have been and will continue to be negatively affected by the pandemic including the temporary closure of retail store locations which continues to fluctuate on a localized basis, presenting ongoing uncertainty relating to the anticipated duration and scope of the pandemic in areas in which we operate, as well as the restrictions imposed by federal, state, and local governments in response to the pandemic; |
| ● | any sustained decline in general global economic conditions, caused by the COVID-19 pandemic or otherwise, could lead to disproportionately reduced consumer demand for our products, including those sold by third-party retailers, which represent relatively discretionary spending, would cause an adverse effect on our liquidity and profitability; |
|
| ● | we rely on a few global supply chain vendors to supply substantially all of our merchandise, and significant price increases or any disruption in their ability to deliver merchandise could harm our ability to source products and supply inventory to our stores; | |
| ● | we depend upon the shopping malls and tourist locations in which our corporately-managed stores and third-party retail locations are situated to attract guests and a decline in consumer traffic, or if such consumer traffic does not return to levels that we saw prior to the pandemic, could adversely affect our financial performance and profitability; |
|
| ● | in connection with the reopening of our stores, we have modified our interactive shopping experience in order to comply with recommended social distancing and sanitation practices. These modifications could have a negative impact on the appeal of our interactive shopping experience, reduce guest traffic to our stores, and decrease the volume of guests that may be able to enjoy our interactive shopping experience which could adversely impact our ability to operate our stores profitably; | |
| ● | we may experience store closures in shopping malls and tourist locations and other impacts to our business resulting from civil disturbances; | |
| ● | we believe the hands-on and interactive nature of our store and high touch service model result in guests forming an emotional connection with our brand, which in turn contributes to the success of our ecommerce platform and drives repeat customer transactions; if the revised experiences we are offering do not create the same guest affinity for our brand, it may adversely affect the value of our brand; | |
| ● | birthdays and other special occasions have historically been a key driver for store traffic, and our inability to host such events due to pandemic restrictions or if our guests are not willing to hold such events at our stores may adversely affect store performance and our overall profitability; | |
| ● | if we are unable to generate interest in and demand for our interactive retail experience and products, including being able to adjust that experience consistent with our guests' expectations as the general retail economy emerges from the restrictions imposed by the pandemic, and to otherwise identify and respond to consumer preferences in a timely manner, our sales, financial condition and profitability could be adversely affected; |
|
| ● | some of our licensed products are based on feature films with planned theatrical launches; given that the pandemic has negatively impacted theaters and delayed movie releases, the portion of our business associated with these films has been and could continue to be negatively affected; | |
| ● | we may be unable to leverage the flexibility within our existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate term as our leases come up for renewal, and there may be other costs and risks related to a brick-and-mortar retail store model such as a lack of available retail store sites on terms acceptable to us as a result; | |
| ● | consumer interests 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 key products and services; |
|
| ● | 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 such as the GDPR or the General Data Protection Regulation, the CCPA or the California Privacy Rights Act (as adopted), or expectations, we could be subject to liability as well as damage to our reputation; |
| ● | 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 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 models and formats 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 which services the majority of our stores in North America and our third-party distribution center providers used in the western United States and Europe may experience disruptions in their ability to support our stores or may operate inefficiently; |
|
| ● |
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, tariffs and foreign currency fluctuations; | |
| ● | if we are unable to effectively manage our international franchises, attract new franchises or if the laws relating to our international franchises change, our growth and profitability could be adversely affected and we could be exposed to additional liability; |
|
| ● | we may not be able to operate our international corporately-managed locations profitably; | |
| ● | we may fail to renew, register or otherwise protect our trademarks or other intellectual property and may be sued by third parties for infringement or, misappropriation of their proprietary rights, which could be costly, distract our management and personnel and which could 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; |
|
| ● | our profitability could be adversely affected by fluctuations in petroleum products prices; |
|
| ● | our business may be adversely impacted at any time by a significant variety of competitive threats; | |
| ● | 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 be unsuccessful in engaging in various strategic transactions, which may negatively affect our financial condition and profitability; | |
| ● | fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline; | |
| ● | the market price of our common stock is subject to volatility, which could in turn attract the interest of activist shareholders; and | |
| ● | 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. |
Overview
We are the only global company that offers an interactive “make your own stuffed animal” retail entertainment experience under the Build-A-Bear Workshop brand, in which guests participate in the stuffing, dressing, accessorizing and naming of their own teddy bears and other stuffed animals. As of May 1, 2021, we had 355 corporately-managed stores globally and had 72 internationally franchised stores under the Build-A-Bear Workshop brand. In addition to these stores, we sell products on our company-owned e-commerce sites, our franchisees sell products through sites that they manage and other third 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., Ireland, and China 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 development fees and the sales from products and fixtures from other international operations under franchise agreements. |
Selected financial data attributable to each segment for the thirteen weeks ended May 1, 2021 and May 2, 2020 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
COVID-19 and Business Update
The beginning of fiscal 2021 saw our United States store portfolio open and operating while our stores in the United Kingdom and Canada remained temporarily closed. In April 2021, our stores in the United Kingdom and Ireland opened as the government lifted lockdown restrictions resulting in essentially all of our European stores operating as the end of the fiscal 2021 first quarter. The majority of our Canadian stores remained temporarily closed at the end of the fiscal quarter as government restrictions continued. Our year-over-year results discussed below, and we expect for the remainder of 2021 will be, impacted by prior year store closures and operating hour reductions as a result of the pandemic.
While we expect to see continued evolution of consumer shopping patterns and preferences in the balance of the year, we believe we have built the infrastructure to respond with greater agility to deal with potential uncertainty and we expect to deliver growth in 2021. We believe that the initiatives and investments that were put in place prior to the pandemic, and in many cases accelerated during the pandemic, are driving improved results, which we expect to continue. We remain focused on our strategic priorities for the year which are centered primarily on three key areas:
| • |
Further acceleration of our digital transformation including content and entertainment initiatives. We are intent on building our business with more effective use of technology and improved and enhanced fulfillment capabilities while leveraging our expanded digital platforms to inform and drive marketing and content efforts. We believe that our multi-year sustained strong trend in e-commerce demand including this quarter’s double-digit increase over the prior year's double-digit increase, highlighted by another quarter of triple-digit growth in North America, demonstrates the progress we continue to make in this area.
|
|
| • | Rapidly evolving our retail capabilities and experiences, including omnichannel, and significantly expanded e-commerce capacity. Our U.S. stores were largely open and operating throughout the quarter. We began the period with all of our European stores closed due to governmental restrictions, however, the majority reopened in April. Not only did we see improving traffic patterns in stores as consumers re-engaged with our interactive retail experience, our workshops also helped fulfill the increase in digital demand through buy online, ship-from store or pickup in-store options. Locations effectively acted as mini-distribution centers leveraging labor and optimizing inventory so the reopening of our brick-and-mortar locations provided advantages in multiple ways. The enhanced capabilities that we put in place in 2020 to diversify our omnichannel options, including adding an allocation algorithm to optimize geographic positioning, have continued to provide critical building blocks to support our sustained strong e-commerce demand. This allowed approximately 1 in every 5 digital orders to be made and shipped from a traditional store in this year’s first quarter.
|
|
| • | Maintaining a solid financial position including a strong balance sheet to support our business and make strategic investments designed to drive further growth. |
Retail Stores:
The table below sets forth the number of Build-A-Bear Workshop corporately-managed stores in North America, Europe and Asia for the periods presented:
| Thirteen weeks ended |
||||||||||||||||||||||||||||||||
| May 1, 2021 |
May 2, 2020 |
|||||||||||||||||||||||||||||||
| North America |
Europe |
Asia |
Total |
North America |
Europe |
Asia |
Total |
|||||||||||||||||||||||||
| Beginning of period |
305 | 48 | 1 | 354 | 316 | 55 | 1 | 372 | ||||||||||||||||||||||||
| Opened | 1 | - | - | 1 | 1 | - | - | 1 | ||||||||||||||||||||||||
| Closed | - | - | - | - | (4 | ) | 0 | - | (4 | ) | ||||||||||||||||||||||
| End of period |
306 | 48 | 1 | 355 | 313 | 55 | 1 | 369 | ||||||||||||||||||||||||
As of May 1, 2021, 41% of our corporately-managed stores were in an updated Discovery format. We also expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans. The future of our retail store fleet may include expansion into more non-traditional locations, including concourse format shops and by expansion in other locations outside traditional malls.
International Franchise Stores:
Our first franchisee location was opened in November 2003. All franchised stores have similar signage, store layout, merchandise characteristics and guest experience as our corporately-managed stores. As of May 1, 2021, we had six master franchise agreements, which typically grant franchise rights for a particular country or group of countries, covering an aggregate of 11 countries.
The number of franchised stores opened and closed for the periods presented below are summarized as follows:
| Thirteen weeks ended |
||||||||
| May 1, 2021 | May 2, 2020 | |||||||
| Beginning of period |
71 | 92 | ||||||
| Opened | 2 | 0 | ||||||
| Closed | (1 | ) | (12 | ) | ||||
| End of period |
72 | 80 | ||||||
In the ordinary course of business, we anticipate signing additional master franchise agreements in the future and terminating other such agreements. We believe there is a total market potential for approximately 300 international stores outside of the U.S., Canada, the U.K., and Ireland. We source fixtures and other supplies for our franchisees from China which significantly reduces the capital and lowers the expenses required to open franchises. We are leveraging new formats that have been developed for our corporately-managed locations such as concourses and shop-in-shops with our franchisees.
Results of Operations
The following table sets forth, for the periods indicated, selected income statement data expressed as a percentage of total revenues, except where otherwise indicated. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales, commercial revenue, international franchising, respectively, as well as immaterial rounding:
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Thirteen weeks ended |
||||||||
| May 1, |
May 2, |
|||||||
| 2021 |
2020 |
|||||||
| Revenues: |
||||||||
| Net retail sales |
97.3 | % | 97.9 | % | ||||
| Commercial revenue |
2.3 | 0.7 | ||||||
| International franchising |
0.4 | 1.4 | ||||||
| Total revenues |
100.0 | 100.0 | ||||||
| Costs and expenses: |
||||||||
| Cost of merchandise sold - retail (1) |
47.2 | 73.1 | ||||||
| Store asset impairment |
0.0 | 10.6 | ||||||
| Cost of merchandise sold - commercial (1) |
42.9 | 42.0 | ||||||
| Cost of merchandise sold - international franchising (1) |
72.0 | 39.6 | ||||||
| Total cost of merchandise sold |
47.2 | 82.7 | ||||||
| Consolidated gross profit |
52.8 | 17.4 | ||||||
| Selling, general and administrative |
38.4 | 57.3 | ||||||
| Interest expense, net |
0.0 | (0.0 | ) | |||||
| Income (loss) before income taxes |
14.4 | (40.0 | ) | |||||
| Income tax expense |
3.1 | 5.4 | ||||||
| Net income (loss) |
11.3 | (45.5 | ) | |||||
| Retail Gross Margin (2) |
52.8 | % | 26.9 | % | ||||
| (1) |
Cost of merchandise sold – retail is expressed as a percentage of net retail sales. Cost of merchandise sold – commercial is expressed as a percentage of commercial revenue. Cost of merchandise sold – international franchising is expressed as a percentage of international franchising revenue. |
| (2) |
Retail gross margin represents net retail sales less cost of merchandise sold - retail; retail gross margin percentage represents retail gross margin divided by net retail sales. |
Thirteen weeks ended May 1, 2021 compared to thirteen weeks ended May 2, 2020
Total revenues. Consolidated revenues increased 96.7%, including a 116.3% increase in North America, which was partially offset by a 18.8% decrease in Europe. The increase in North America was primarily driven by increased e-commerce sales and retail store operating days compared to the same period in the prior year which saw temporary store closures due to the pandemic. The decrease in Europe was the result of a decrease in store operating days due to government restrictions compared to the same period in the prior year partially offset by an increase in e-commerce sales.
Net retail sales for the thirteen weeks ended May 1, 2021 were $89.2 million, compared to $45.6 million for the thirteen weeks ended May 2, 2020, an increase of $43.6 million, or 95.4% compared to the prior year period. The components of this increase are as follows (dollars in millions):
| Thirteen weeks ended |
||||
| May 1, 2021 |
||||
| Impact from: | ||||
| Existing stores | $ | 35,405 | ||
| E-commerce | 7,282 | |||
| New stores | 462 | |||
| Store closures | (782 | ) | ||
| Gift card breakage | 453 | |||
| Foreign currency translation | 624 | |||
| Deferred revenue estimates | 121 | |||
| Total Change |
$ | 43,565 | ||
The retail revenue increase was primarily the result of the increase in store operating days in North America and consolidated e-commerce sales.
Commercial revenue was $2.1 million for the thirteen weeks ended May 1, 2021 compared to $0.3 million for the thirteen weeks ended May 2, 2020. The $1.8 million increase is the result of increased sales volume from our commercial customers as a result of the prior year effect of the pandemic on third-party retail locations serviced by our commercial customers.
International franchising revenue was $0.4 million for the thirteen weeks ended May 1, 2021 compared to $0.6 million for the thirteen weeks ended May 2, 2020. The $0.2 million decrease is primarily due to permanent closures of certain of our franchise locations in the latter half of fiscal 2020 and temporary closures of stores due to mandated government restrictions due to the pandemic.
Retail gross margin. Retail gross margin dollars increased $34.8 million to $47.1 million compared to the thirteen weeks ended May 2, 2020. The retail gross margin rate increased 2,590 basis points primarily driven by an increase in corporately-managed retail sales, a decrease in fixed occupancy costs recorded as a result of rent negotiations during the prior fiscal year, and an increase in merchandise margin.
Selling, general and administrative. Selling, general and administrative expenses were $35.2 million for the thirteen weeks ended May 1, 2021 or 38% of revenue, an increase of $8.5 million compared to the thirteen weeks ended May 2, 2020, which was 57% of revenue. The increase was primarily due to higher labor costs given the re-opening of substantially all of our U.S. store base during the thirteen weeks ended May 1, 2021.
Benefit/Provision for income taxes. Income tax expense was $2.8 million with a tax rate of 21.3% for the thirteen weeks ended May 1, 2021 compared to $2.5 million with a tax rate of (13.6%) for the thirteen weeks ended May 2, 2020. In the first quarter of fiscal 2021 the effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the tax impact of equity awards vesting. While we are still in a full valuation allowance globally, we recorded tax
expense on the pretax income earned in the first quarter of fiscal 2021 based on our projected current tax expense. In the first quarter of fiscal 2020, the effective tax rate differed from the statutory rate of 21% primarily due to a $3.3 million valuation allowance recorded on the beginning balance of the net deferred tax assets in certain jurisdictions offset by $0.8 million of benefit as a result of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. In addition, no tax benefit was recorded on the fiscal 2020 first quarter pretax loss as a full valuation allowance was recorded globally.
Seasonality and Quarterly Results
Our operating results for one period may not be indicative of results for other periods, and may fluctuate significantly because of a variety of factors, including, but not limited to: (1) changes in general economic conditions (including as a result of the pandemic) and consumer spending patterns; (2) changes in store operations in response to the pandemic apart from its effect on the general economy, including temporary store closures required by local governments; (3) increases or decreases in our existing store and e-commerce sales; (4) fluctuations in the profitability of our stores; (5) the timing and frequency of the sales of licensed products tied to major theatrical releases (including the cancellation or delay of such releases due to the pandemic) and our marketing initiatives, including national media and other public relations events; (6) changes in foreign currency exchange rates; (7) the timing of new store openings, closings, relocations and remodeling and related expenses; (8) changes in consumer preferences; (9) the effectiveness of our inventory management; (10) the actions of our competitors or mall anchors and co-tenants; (11) seasonal shopping patterns and holiday and vacation schedules; (12) disruptions in store operations due to civil unrest; and (13) weather conditions.
The timing of store closures, relocations, remodels and openings (and re-openings) may result in fluctuations in quarterly results based on the revenues and expenses associated with each store location. Expenses related to store closings are typically incurred in stages: when the decision is made to close the store typically associated with a lease event such as an expiration or lease triggered clause; when the closure is communicated to store associates; and at the time of closure. We typically incur most preopening costs for a new store in the three months immediately preceding the store’s opening.
Because our retail operations include toy products which have sales that historically peak in relation to the holiday season as part of our revenue model, our sales have historically been highest in our fourth quarter. The timing of holidays and school vacations can impact our quarterly results. We cannot provide assurance that this will continue to be the case. In addition, for accounting purposes, the quarters of each fiscal year consist of 13 weeks, although we will have a 14-week quarter approximately once every six years. For example, the 2014 fiscal fourth quarter had 14 weeks.
Liquidity and Capital Resources
As of May 1, 2021, we had a consolidated cash balance of $45.9 million, approximately 85% of which was domiciled within the United States. Historically, our cash requirements have been primarily for the relocation and remodeling of existing stores in our new design, opening of new stores, investments in information technology infrastructure and working capital. Over the past several years, we have met these requirements through capital generated from cash flow provided by operations.
A summary of our operating, investing and financing activities is shown in the following table (dollars in thousands):
| Thirteen weeks ended |
||||||||
| May 1, |
May 2, |
|||||||
| 2021 |
2020 |
|||||||
| Net cash provided by (used in) operating activities |
$ | 12,059 | $ | (2,506 | ) | |||
| Net cash used in investing activities |
(491 | ) | (2,849 | ) | ||||
| Net cash used in financing activities |
(625 | ) | (114 | ) | ||||
| Effect of exchange rates on cash |
148 | 594 | ||||||
| Increase (decrease) in cash, cash equivalents, and restricted cash | $ | 11,091 | $ | (4,875 | ) | |||
Operating Activities. Cash provided by operating activities increased $14.6 million for the thirteen weeks ended May 1, 2021, as compared to the thirteen weeks ended May 2, 2020. This increase in cash from operating activities was primarily driven by increased retail store operating days in the U.S. resulting in higher net income.
Investing Activities. Cash used in investing activities decreased $2.4 million for the thirteen weeks ended May 1, 2021 as compared to the thirteen weeks ended May 2, 2020. This decrease in cash from investing activities was primarily driven by timing of planned capital expenditures.
Financing Activities. Cash used in financing activities decreased $0.5 million for the thirteen weeks ended May 1, 2021, as compared to the thirteen weeks ended May 2, 2020. This decrease in cash from financing activities was driven by increased stock-based compensation vesting resulting in the need for more shares withheld for taxes offset by proceeds from stock option exercises.
Capital Resources: We have a revolving credit and security agreement with PNC Bank, as agent, that provides for a secured revolving loan in aggregate principal of up to $25.0 million, subject to a borrowing base formula. Borrowings under the agreement bear interest at (a) a base rate determined under the agreement, or (b) the borrower's option, at a rate based on LIBOR, plus in either case a margin based on average undrawn availability as determined in accordance with the agreement. As of May 1, 2021, our borrowing base was slightly more than $16.8 million. As a result of a $1.0 million letter of credit against the line of credit at the end of the fiscal 2021 first quarter, approximately $15.8 million was available for borrowing. We had no outstanding borrowings as of the end of May 1, 2021.
Most of our corporately-managed retail stores are located within shopping malls and all are operated under leases classified as operating leases. Our leases in North America have shifted to shorter term leases, many of which include variable rent structures, to provide flexibility in aligning stores with market trends. Our leases typically require us to pay personal property taxes, our pro rata share of real property taxes of the shopping mall, our own utilities, repairs and maintenance in our store, a pro rata share of the malls’ common area maintenance and, in some instances, merchant association fees and media fund contributions. Many new leases contain incentives to help defray the cost of construction of a new store. Typically, a portion of the incentive must be repaid to the landlord if we choose to terminate the lease before the end of its initial term. In addition, some of these leases contain various restrictions relating to change in control of our company. Our leases also subject us to risks relating to compliance with changing mall rules and the exercise of discretion by our landlords on various matters, including rights of termination in some cases. Rents are invoiced monthly and paid in advance.
Our leases in the U.K. and Ireland typically have terms of ten years and generally contain a provision whereby every fifth year the rental rate can be adjusted to reflect the current market rates. The leases typically provide the lessee with the first right for renewal at the end of the lease. Real estate taxes also change according to government time schedules to reflect current market rental rates for the locations we lease. Rents are invoiced monthly or quarterly and paid in advance.
Capital spending through the thirteen weeks ended May 1, 2021 totaled $0.5 million and we expect to spend a total of $5 to $10 million on capital expenditures for fiscal 2021.
Off-Balance Sheet Arrangements
None.
Inflation
We do not believe that inflation has had a material adverse impact on our business or operating results during the periods presented. We cannot provide assurance, however, that our business will not be affected by inflation in the future.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the appropriate application of certain accounting policies, which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the financial statements.
We believe application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates, including those related to long-lived assets, leases, revenue recognition and income taxes, are reevaluated on an ongoing basis, and adjustments are made when facts and circumstances dictate a change.
Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates. Our critical accounting policies and estimates are discussed in and should be read in conjunction with our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC) on April 15, 2021, which includes audited consolidated financial statements for our 2020 and 2019 fiscal years. There have been no material changes to the critical accounting estimates disclosed in the 2020 Form 10-K.
Recent Accounting Pronouncements
See Note 1 to the Condensed Consolidated Financial Statements — Basis of Presentation — Recent Accounting Pronouncements – Adopted in the Current Year
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to our Quantitative and Qualitative Disclosures About Market Risk as disclosed in our Annual Report on Form 10-K for the year ended January 30, 2021 as filed with the SEC on April 15, 2021.
Item 4. Controls and Procedures.
Our management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including our certifying officers, as appropriate to allow timely decisions regarding required disclosure. Based on the foregoing evaluation, our management, including the President and Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of May 1, 2021, the end of the period covered by this Quarterly Report.
It should be noted that our management, including the President and Chief Executive Officer and the Chief Financial Officer, does not expect that our disclosure controls and procedures or internal controls will prevent all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control Over Financial Reporting. The Company’s management, with the participation of the Company’s President and Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. There have been no changes in our internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
There have been no material changes to our risk factors as disclosed in our Annual Report on Form 10-K for the year ended January 30, 2021 as filed with the SEC on April 15, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
| Period |
(a) Total Number of Shares (or Units) Purchased (1) | (b) Average Price Paid Per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (2) | ||||||||||||
| Jan. 31, 2021 - Feb. 27, 2021 | 11 | 7.03 | - | $- | ||||||||||||
| Feb. 28, 2021 - Apr. 3, 2021 | - | - | - | - | ||||||||||||
| Apr. 4, 2021 - May 1, 2021 | 112,331 | 8.22 | - | - | ||||||||||||
| Total | 112,342 | 8.22 | - | - | ||||||||||||
| (1) |
Represents shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of restricted shares which vested during the quarter. Our equity incentive plans provide that the value of shares delivered to us to pay the withholding tax obligations is calculated at the closing trading price of our common stock on the date the relevant transaction occurs. |
The following is a list of exhibits filed as a part of the quarterly report on Form 10-Q:
| 32.2 |
|
|
|
|
|
|
| 101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
| 101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
| 101.CAL |
|
Inline XBRL Extension Calculation Linkbase Document |
|
|
|
|
| 101.DEF |
|
Inline XBRL Extension Definition Linkbase Document |
|
|
|
|
| 101.LAB |
|
Inline XBRL Extension Label Linkbase Document |
|
|
|
|
| 101.PRE |
|
Inline XBRL Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Management contract or compensatory plan or arrangement.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: June 10, 2021
|
|
BUILD-A-BEAR WORKSHOP, INC. |
|
|
|
(Registrant) |
|
|
|
|
|
|
|
By: |
/s/ Sharon John |
|
|
|
Sharon John |
|
|
|
President and Chief Executive Officer (on behalf of the registrant and as principal executive officer) |
|
|
|
|
|
|
By: |
/s/ Voin Todorovic |
|
|
|
Voin Todorovic |
|
|
|
Chief Financial Officer (on behalf of the registrant and as principal financial officer) |