RESEARCH PROJECT ——- Financial
The students have to complete an individual or group (determined by
your professor) financial research project. The purpose of this assignment is
to test the students’ ability to research, analyze and present financial information.
The students will be required to research key financial data, analyze the
information, apply the appropriate financial concepts and formulas and prepare
a credible management level financial report.
The Financial Research Project, as described below, will be assigned on-line
on the beginning of week 1 of the course. This project is due, submitted
online via LEO, not later than the date indicated in the course schedule.
This report should be about 8-10 double-spaced typewritten pages (ignoring
any tables or graphs – which are recommended).
This Written Assignment is valued at 20% of your final course grade. This
report will require (1) financial data research, (2) the application of a wide
range of financial theories, and (3) quantitative analysis to prepare a
professionally-sound and supported recommendation. The report will be evaluated
based on the following three factors:
–30%—-The quality of the supporting research and references.
–50%—-The analysis of the data, presented in the report. The student
demonstrates understanding and application of economic concepts and formulas.
–20%—-The presentation approach, professionalism, logic and
persuasiveness of your recommendation
Please use the attached document and website on Build-A-Bear Company to do the assignment.http://www.sec.gov/Archives/edgar/data/1113809/000143774915005513/bbw20150103_10k.htmbabw_2014_ar_optimized_2.pdf2014 ANNUAL REPORT
BUILD-A-BEAR WORKSHOP, INC.
2014 BBW Financial Highlights
(1)
Dollars in thousands, except per share, per store and per gross square foot data
REVENUES 2014 2013 2012
Net retail sales
$ 387,725
$ 373,173
$ 374,553
Franchise fees
$
2,531
$
3,564
$
3,598
Commercial revenue
$
2,098
$
2,332
$
2,790
Total revenues
$ 392,354
$ 379,069
$ 380,941
Net income (loss)
$
$
$ (49,295)
14,362
(2,112)
2014
324
2013
323
2012
INCOME (LOSS) PER COMMON SHARE
Basic
$
0.82
$
(0.13)
$
(3.02)
Diluted
$
0.81
$
(0.13)
$
(3.02)
OTHER FINANCIAL AND STORE DATA
Retail gross margin (dollars) (2)
GLOBAL COMPANY-OWNED STORES
Number of stores at the end of the period
$ 153,477
$ 145,687
Retail gross margin (percent) (2) 45.6% 41.1%
$ 176,838
38.9%
Number of company-owned
stores at end of period
North American average net retail
sales per store
$
North American net retail sales
per gross square foot
$
324
1,158
409
$
$
323
1,080
381
351
$
$
1,003
350
351
NORTH AMERICAN STORE ECONOMICS
With 1-4 year Goals
Key Metrics
Goals
2014
2013
2012
Average Store Sales (in millions)
$1.2-1.4
$1.2
$1.1
$1.0
Average Gross Square Feet
2,600-2,800 2,829
2,835
2,867
Average Sales / Gross Square Feet
$450-500
$409
$381
$350
Store Contribution
20-22%
18.4%
13.7%
8.9%
240-260
245
253
283
(3)
Number of Traditional Stores
BBW STOCK PERFORMANCE
BBW vs. S&P 500 Retailing Index vs. S&P 500 Index for Fiscal Years 2013-2014
We started to execute our real estate
optimization strategy as a part of our
turnaround plans in late 2012. As a part
of that strategy, in fiscal 2014 we closed
15 stores and opened 16 stores to finish
the year with 324 company-owned stores
including 6 shop-in-shop and temporary
locations that closed in January 2015.
BBW
S&P 500 Retailing
S&P 500
500%
450%
+389%
400%
350%
300%
250%
200%
150%
100%
+60%
+47%
50%
0%
-50%
12/29 1/31
2012 2013
2/28 3/31
2013 2013
4/30 5/31
2013 2013
6/30 7/31
2013 2013
8/31
2013
9/30 10/31 11/30 12/31 1/31 2/28 3/31 4/30 5/31 6/30 7/31 8/31 9/30 10/31 11/30 1/3
2013 2012 2013 2012 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2015
1. For description of this financial and store data, please see the fiscal 2014 Annual Report on Form 10-K. Fiscal 2014, includes 53rd week.
2. Retail gross margin represents net retail sales less cost of retail merchandise sold. Retail gross margin percentage represents retail gross margin divided by net retail sales.
3. Store contribution represents net retail sales of store locations open for the full year minus cost of product, marketing and store related expenses divided by net retail sales.
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
LETTER TO SHAREHOLDERS
“Build-A-Bear Workshop has the potential to be MORE than it has ever been.”
In reflecting on my first full year as CEO,
I am inspired by this company’s ability to
quickly adapt to change and return to
profitability for the first time since 2010.
Why were we able to get an engrained
organization to think differently, act
differently and ultimately achieve vastly
different results in a little over a year?
I believe the answer lies in understanding
the increased level of dedication that can
be called upon when the mission is about
a beloved brand versus “just” a business.
Our brand is unique. It evokes positive
emotions and special memories, not only
for the millions of guests who have made
furry friends over the last 17 years, but
also for our valued associates.
Our associates believe that there is “a
little more heart” in the world because of
Build-A-Bear. So, when change became
necessary, the question was not about
“why” we needed to change but about
“what” we needed to do. That’s where
our 3-pronged strategy came into focus:
1) Optimizing real estate, 2) Resetting
the consumer value equation,
and 3) Rationalizing expenses.
Evangelizing and staying true to the
disciplined execution of this strategy
enabled us to gain commitment and
deliver our goal of sustained profitability.
Ultimately, the organization’s hard work is
reflected in our results. And, now that we
have achieved eight consecutive quarters
of improved operating performance, it is
once again time to evolve.
BUILD-A-BEAR WORKSHOP, INC.
Our brand resonates with a broad base
of consumers and consistently posts
strong numbers on metrics such as
recognition, loyalty and advocacy.
Harnessing this brand power will allow
us to extend beyond the confines of
traditional retail. Simply put, Build-ABear Workshop has the potential to be
MORE than it has ever been. We believe
we can leverage our brand equity into
new revenue streams by evolving our
business model and executing our
“MORE X 4” strategy:
1. MORE Places
Open new and non-traditional retail
locations domestically and
internationally
2. MORE People
Grow the core and build new
consumer segments
3. MORE Products
Drive branded stories and enter
new categories
4. MORE Profitability
Focus on continued margin expansion
while driving sales
As you know, shifts in business models
often come in “fits and starts” but this
company has proven itself both worthy
of and ready for challenges. Over the
past year, we have made changes to
strengthen our senior management
team by adding new skills and talent in
order to drive our evolved plans ahead.
We are undoubtedly a company with
heart and although it may take MORE
heart than we have previously had to
muster to move to the next level – I am
confident that we have the plans and
the team to succeed.
I would like to extend my gratitude to
our shareholders and, in particular, to
Mary Lou Fiala, our non-executive chair,
and to Maxine Clark, the founder of
Build-A-Bear Workshop, for their on-going
support and guidance. I would also like to
express my appreciation to our partners
and associates including Tina Klocke, our
first CFO, who recently left the company
after 17 years of dedicated service.
We are optimistic about the future of this
very special brand and believe we have
the strategy, the leadership team and
the organization in place for this
company to be MORE.
Best Regards,
Sharon Price John
Chief Executive Officer
2014 ANNUAL REPORT
1
GUEST DEMOGRAPHICS
(BY AGE)
Teen+
REASONS GUESTS VISIT
0–2
25%
3–5
9–12
6–8
Over 60% of sales are to our
core consumer, ages 3-12
20% of sales are to guests
over 12 years old
42%
OUR STRONG
BRAND
HAS POTENTIAL FOR
M
O
R
E
33%
42%
“Traditional” Visit
33%
Birthday Celebration
(party or single)
25%
To Purchase a Gift
The Build-A-Bear ® brand is loved by kids and trusted by
parents with reach that extends beyond our stores. Our brand
has high awareness, stirs positive emotions with consumers,
has broad demographic appeal and is strongly positioned
against other leading family brands on key factors including
loyalty and overall satisfaction.
OF GUESTS
ARE BOYS
Guests visit our stores for milestone events, rites of passage,
key holidays and for everyday entertainment which tends to
give us a balanced quarterly business. Our brand is
synonymous with fun, creativity and discovery. As our business
plans evolve, the focus on our consumers and building our
brand will remain at the heart of everything we do.
We have the highest brand
loyalty score** among key
comparative retail brands
* Since 1997.
** Loyalty is measured using an index of
likelihood to recommend, likelihood to
repurchase, overall satisfaction and
preferred company.
2
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
OUR
BUSINESS
PL AN
The combination of a strong brand and
a strong plan gives us the foundation to
be MORE.
M
O
R
E
BUILD-A-BEAR WORKSHOP, INC.
M O M E NTU M
We have delivered solid results and sustained
profitability with the execution of our turnaround
plan. We have now created the momentum we need
to evolve the business model.
O P P O R TU N IT Y
We are evolving from our stated goal of sustained
profitability to sustained profitable growth with the
opportunity to drive continuous improvement in current
efforts and strategic expansion into new initiatives.
R E L ATI O N S H I P S
We can continue to build on our strong relationships
with best-in-class entities to expand our business
and create incremental value for our partners.
E XC ITE M E NT
We have a clear strategy that is working, a new
leadership team and organizational structure
as well as planned investments in store and IT
infrastructure generating excitement for our future
growth plans.
2014 ANNUAL REPORT
3
M
MOMENTUM
The disciplined execution of our strategies
has resulted in improved business results
giving us great momentum.
In 2014, we delivered on our three-pronged strategy to return
North America to sustained profitability by employing a
consumer-centric, brand-building, data-driven business
approach. We made steady progress toward our stated longterm sales productivity and profitability goals culminating in a
strong fourth quarter that represented the convergence of the
strategies that we had been driving throughout the year.
4
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
Optimize
Real Estate
Reset Consumer
Value Equation
Rationalize
Expenses
In 2014, 98% of our North American
stores generated positive four-wall
contribution with an average rate of
over 18% moving us closer to our stated
goal of 20-22% four-wall profit. This
contributed to a 17% increase in North
American sales per square foot since
2012 when our turnaround plan began.
Our plan to use discounts more
strategically and to elevate and integrate
marketing across all consumer touch
points with a focus on enhancing our
brand contributed to our first consecutive
2-year increase in North American
comparable stores in over a decade. This
comparable store sales growth was
partially driven by a 9% increase in dollars
per transaction, which reached its highest
level in our company’s history.
The fourth quarter of 2014 represented
the first period where we were able to
value-engineer our products from the
planning state. This effort, combined with
strategic price increases and occupancy
cost leverage from the addition of a 53rd
week, resulted in a 730 basis point
improvement in retail gross margin for
the fourth quarter and a 450 basis point
expansion for the fiscal year.
We also selectively opened stores to
take advantage of high traffic tourist
locations including five temporary shopin-shops within key Macy’s locations for
the holiday season.
PERCENTAGE OF
PROFITABLE
STORES*
90%
98%
78%
FIRST
2012
NORTH AMERICA
SALES PER
SQUARE FOOT*
2013
2014
$350
$409
STORE SALES
OVER A DECADE.
2013
* North American stores open for the full year.
BUILD-A-BEAR WORKSHOP, INC.
2014
2012
2 YEAR
GROWTH IN
2012
38.6%
CONSECUTIVE
COMPARABLE
$381
RETAIL GROSS
MARGIN AS A
PERCENTAGE
OF NET RETAIL
SALES
SELLING,
GENERAL AND
ADMINISTRATIVE
EXPENSES AS
A PERCENTAGE
OF TOTAL
REVENUES**
42.7%
2012
41.1%
2013
45.6%
2014
41.0% 41.3%
2013
2014
** Excluding management transition, store closing and,
in 2012, asset impairment expenses
2014 ANNUAL REPORT
5
O
OPPORTUNITY
The combination of a strong business with a
strong brand gives us the opportunity to
evolve our business from a goal of sustained
profitability to sustained profitable growth.
Our priorities remain focused on the disciplined execution
of our strategies while capitalizing on our powerful brand
to generate incremental revenue and profit streams. During
2015, we will evolve from a focus on “fixing” the business
to one of “building” through a combination of continuous
improvement of current initiatives and strategic expansion
in additive areas in order to achieve our goal of sustained
profitable growth.
6
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
More Places
More People
C O N T I N U O U S I M P R OV E M E N T:
C O N T I N U O U S I M P R OV E M E N T:
We plan to continuously improve our real estate model by
strategically evolving our store portfolio to align with market
trends while selectively opening new locations and
systematically refreshing our store base. We plan to continue
opening stores in high potential destinations such as tourist
locations, outlet malls and shop-in-shops, which tend to overindex on key metrics compared to traditional mall stores.
We intend to continuously grow our business with our core three
to twelve year-old consumer segment which represents a
majority of current revenue. We will focus on initiatives that drive
trial and increase repeat visits with an evolved segmentation,
product development and marketing strategy.
S T R AT E G I C E X PA N S I O N :
S T R AT E G I C E X PA N S I O N :
We expect to leverage the strength in our company-owned
business and strategically grow our international presence by
adding new countries of operation and expanding in existing
markets. In 2014, we added a new franchisee in Turkey and
restructured and expanded our franchise agreement in Germany
with the addition of two countries, Switzerland and Austria.
We expect to strategically grow sales to consumers over twelve
years-old with a focus on key categories including gift-giving,
affinity and collectibles. This consumer segment currently
represents over 20% of sales and has a tendency to over-index on
less price-sensitive “gift-able” and on-line purchases. Therefore,
we will leverage our e-commerce business to efficiently target
these consumers.
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
7
More Products
More Profitability
C O N T I N U O U S I M P R OV E M E N T:
C O N T I N U O U S I M P R OV E M E N T:
We intend to continuously improve and extend our efforts to
successfully develop high impact product stories coupled with
integrated marketing programs that tend to garner higher
price points, drive add-on purchases and create “play beyond
the plush”.
We will continuously improve our value engineering initiatives
to further optimize product margins while implementing new
systems that facilitate sales growth, increase efficiency and
improve long term profitability.
S T R AT E G I C E X PA N S I O N :
S T R AT E G I C E X PA N S I O N :
We plan to strategically leverage our strong brand equity and
expand our presence while creating a new sales and profit
stream by launching an out-bound licensing program. Given
that 75% of guests surveyed were interested in purchasing
licensed Build-A-Bear® consumer products, we believe we can
provide new offerings in relevant categories to provide
consumers with “products beyond the plush”.
We expect to expand our profitability by prioritizing the
incremental strategic expansion initiatives highlighted in this
section. We believe these initiatives will be comparatively
margin accretive because they leverage existing infrastructure,
are primarily royalty based and allow for discreet pricing.
8
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
R
RELATIONSHIPS
We attract best-in-class partners who
want to bring their intellectual property
to “life” in a way that only we can.
Our make-your-own version of popular characters from
companies ranging from Hasbro to Nickelodeon appeal across
ages and genders. Our “character bears” like our Elsa bear
from Disney’s Frozen film both surprise and delight. We often
launch these products to coincide with movie events which
drives awareness and keeps us on trend. We also attract a
broad audience with our licensed sports offering featuring both
pro and college teams. Many of these relationships evolve to
include co-marketing and, in the case of Disney, real estate. We
expect to continue to build on the cross-functional strength of
our key relationships to expand our business and create
incremental value for our partners.
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
9
E
EXCITEMENT
We have an exciting future ahead of us.
The combination of momentum, opportunity and
relationships has generated excitement for our business.
We have a clear strategy that is delivering solid results and
a new management team in place to drive our growth
initiatives. In 2015, we will introduce the first major refresh
to our brand since our inception which will inform many of
our consumer-facing touch points including a new store
design and updated web site as we prepare to celebrate
our upcoming 20th birthday in 2017.
MORE places, MORE people, MORE products, MORE
profitability – BBW is a company with an exciting future
and even MORE to come!
10
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 3, 2015
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number: 001-32320
BUILD-A-BEAR WORKSHOP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
1954 Innerbelt Business Center Drive
St. Louis, Missouri
(Address of Principal Executive Offices)
43-1883836
(I.R.S. Employer Identification No.)
63114
(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
Common Stock, par value $0.01 per share
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
Yes
No
No
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
Yes
No
requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
Yes
No
shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
There is no non-voting common equity. The aggregate market value of the common stock held by nonaffiliates (based upon the closing price of $12.54 for the shares on
the New York Stock Exchange on June 27, 2014) was $164,615,013 as of June 28, 2014.
As of March 13, 2015, there were 17,412,152 issued and outstanding shares of the registrant’s common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its May 14, 2015 Annual Meeting are incorporated herein by reference.
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
1
BUILD-A-BEAR WORKSHOP, INC.
INDEX TO FORM 10-K
PAGE
Forward-Looking Statements
3
PART I
Item 1.
Business
4
Item 1A.
Risk Factors
6
Item 1B.
Unresolved Staff Comments
13
Item 2.
Properties
13
Item 3.
Legal Proceedings
14
Item 4.
Mine Safety Disclosure
14
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
15
Item 6.
Selected Financial Data
16
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
29
Item 8.
Financial Statements and Supplementary Data
29
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
29
Item 9A.
Controls and Procedures
29
Item 9B.
Other Information
31
Item 10.
Directors, Executive Officers and Corporate Governance
31
Item 11.
Executive Compensation
32
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
32
Item 13.
Certain Relationships and Related Transactions and Director Independence
32
Item 14.
Principal Accountant Fees and Services
32
Exhibits and Financial Statement Schedules
33
Exhibit Index
49
Signatures
54
PART II
PART III
PART IV
Item 15.
2
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain statements that
are, or may be considered to be, “forward-looking statements” for
the purpose of federal securities laws, including, but not limited to,
statements that reflect our current views with respect to future events
and financial performance. We generally identify these statements
by words or phrases such as “may,” “might,” “should,” “expect,”
“plan,” “anticipate,” “believe,” “estimate,” “intend,” “predict,” “future,”
“potential” or “continue,” the negative or any derivative of these
terms and other comparable terminology. These forward-looking
statements, which are subject to risks, uncertainties and assumptions
about us, may include, among other things, projections or statements
regarding:
• our future financial performance;
• our anticipated operating strategies and future strategic expansion
initiatives;
• our future capital expenditures;
• our anticipated rate of store closures, relocations and openings;
and
• our anticipated costs related to store closures, relocations and
openings.
BUILD-A-BEAR WORKSHOP, INC.
These statements are only predictions based on our current
expectations and projections about future events. Because these
forward-looking statements involve risks and uncertainties, there
are important factors that could cause our actual results, level of
activity, performance or achievements to differ materially from the
results, level of activity, performance or achievements expressed or
implied by these forward-looking statements, including those factors
discussed under the caption entitled “Risk Factors” as well as other
places in this Annual Report on Form 10-K.
We operate in a competitive and rapidly changing environment.
New risk factors emerge from time to time and it is not possible for
management to predict all the risk factors, nor can it assess the
impact of all the risk factors on our business or the extent to which
any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, you should not place
undue reliance on forward-looking statements, which speak only
as of the date of this Annual Report on Form 10-K, as a prediction of
actual results.
You should read this Annual Report on Form 10-K completely and
with the understanding that our actual results may be materially
different from what we expect. Except as required by law, we
undertake no duty to update these forward-looking statements, even
though our situation may change in the future. We qualify all of our
forward-looking statements by these cautionary statements.
2014 ANNUAL REPORT
3
PART I
ITEM 1. BUSINESS
Overview
Build-A-Bear Workshop, Inc., a Delaware corporation, was formed
in 1997 and is primarily a specialty retailer offering a “make your own
stuffed animal” interactive retail-entertainment experience. As of
January 3, 2015, we operated 324 company-owned retail stores in the
United States, Canada, the United Kingdom and Ireland, including
245 traditional and 20 non-traditional Build-A-Bear Workshop®
stores in the United States and Canada and 57 traditional and two
non-traditional Build-A-Bear Workshop stores in the United Kingdom
and Ireland. In addition, franchisees operated 71 Build-A-Bear
Workshop stores in other international locations.
Segments and Geographic Areas
We conduct our operations through three reportable segments
consisting of retail, international franchising, and commercial.
Our reportable segments are primarily determined by the types
of customers they serve and the types of products and services
that they offer. Each reportable segment may operate in many
geographic areas. Financial information related to our segments
and the geographic areas in which we operate is contained in “Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.” See Note 16 – Segment Information to the
Consolidated Financial Statements for information regarding sales,
results of operations and identifiable assets of the Company by
business segment and geographic area.
We believe there are opportunities in the future to leverage the
strength of the Build-A-Bear brand and generate incremental
revenue and profits given the high consumer recognition and strong
positioning as a trusted, high quality brand that is emotionally
connected with both kids and their parents.
Operating Strategies
Our company is in the midst of a multi-year turnaround plan that
builds on a strong base of profitable stores. To increase shareholder
value, in 2015, we will begin to evolve from our stated goal of
sustained profitability to sustained profitable growth. Through
a combination of continuous improvement of current efforts and
strategic expansion into additive opportunities for each of the key
initiatives outlined below, we expect to deliver both incremental
revenue and profit. The four key initiatives are:
1.
Expanding into more places: We intend to continuously improve
our real estate model by strategically evolving our store
portfolio to align with market trends while selectively opening
new locations and systematically refreshing our store base.
To this end, we plan to open additional stores in high potential
destinations such as tourist locations, outlet malls and shopin-shops, which have proven more productive than traditional
mall stores. We expect to strategically expand our international
presence by leveraging the improving strength in our companyowned stores to restructure and extend our international
footprint. We expect to develop new market expansion through
both franchise and company-owned store models.
2.
Targeting more people: We intend to continuously grow our
business with our core three to twelve year-old consumer
segment which represents a majority of current revenue. We will
focus on initiatives that drive trial and increase repeat visits with
an evolved segmentation, product development and marketing
strategy. We expect to strategically grow sales to consumers
over twelve years-old with a focus on key categories including
gift-giving, affinity and collectibles. The over-twelve consumer
segment currently represents approximately 20% of sales and
has a tendency to over-index on less price-sensitive gift-able
and on-line purchases. Therefore, we intend to leverage our
e-commerce business to efficiently target these consumers.
3.
Developing more products: We intend to continuously improve
and extend our efforts to successfully develop high impact
product stories coupled with integrated marketing programs
that tend to garner higher price points, drive add-on purchases
and create play beyond the plush. We also plan to strategically
expand our presence and create new sales and profit streams
by re-launching an out-bound licensing program to leverage
our strong brand equity. We expect licensing to enable Build-ABear to extend our brand reach with new offerings in relevant
categories and will provide consumers with products beyond the
plush.
Description of Operations
Currently, we primarily operate specialty retail stores that provide
a “make your own stuffed animal” interactive entertainment
experience in which our guests visit a variety of stations in order to
make and customize a stuffed animal. Our retail concept is a unique
combination of experience and product and we are focused on
enhancing our brand equity while meeting the needs of consumers
by offering premium products that meet high quality standards,
offer a relevant selection and are trend-right. We seek to provide
outstanding guest service and experiences across all channels and
touch points including our stores, our Web sites, our mobile sites and
apps as well as traditional and social media. Our store experience
appeals to a broad range of age groups and demographics,
including children, as well as their parents and grandparents, teens,
and adult collector and affinity consumers. We have relatively
balanced seasonality on a quarterly basis and guests visit our
stores for multiple reasons including interactive family experiences,
birthdays, parties and other milestone occasion celebrations and
to purchase gifts including the “gift of experience” that comes with
a Bear Bucks® gift card. 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.
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BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
4.
Driving more profitability: We intend to continuously improve
our value engineering initiatives to further optimize product
margins while implementing new systems that facilitate sales
growth, increase efficiency and improve long term profitability.
We expect to strategically expand our profitability by prioritizing
incremental growth initiatives, like those discussed above,
that leverage existing infrastructure, are primarily royaltybased, and/or allow for discrete pricing and are therefore
comparatively margin-accretive.
Merchandise Sourcing and Inventory Management
Our retail stores offer an extensive and coordinated selection of
merchandise, including over 30 different styles of animals to be
stuffed, sounds and scents that can be added to the stuffed animals
and a wide variety of clothing, shoes and accessories, as well as other
brand appropriate toy and novelty items. We believe we comply with
governmental toy safety requirements specific to each country where
we have stores.
Our stuffed animal skins and clothing are produced from high
quality man-made materials or natural fibers such as cotton, and
the stuffing is made of a high-grade polyester fiber. We believe all of
our products in our stores and through our Web sites meet Consumer
Product Safety Commission requirements including the Consumer
Product Safety Improvement Act (CPSIA) for Children’s Products.
We also comply with American Society for Testing and Materials
(ASTM), EN71 (European standards) and Canadian specifications for
toy safety in all material respects. Our products are tested through
independent third-party testing labs for compliance with toy safety
standards. Packaging and labels for each product indicate to our
guests the age grading for the product and any special warnings in
accordance with guidelines established by the Consumer Product
Safety Commission. We believe that our supplier factories are
compliant with the International Council of Toy Industries (ICTI) CARE
certification or with other third party social compliance programs.
The CARE (Caring, Awareness, Responsible, Ethical) process is the
ICTI program to promote ethical manufacturing in the form of fair
labor treatment, as well as employee health and safety in the toy
industry supply chain worldwide. In order to obtain this certification,
each factory completed a rigorous evaluation performed by an
accredited ICTI agent.
The average time from product conception to the arrival of the
products into our stores is approximately twelve months, including
approximately 90 to 120 days from the beginning of production to
in-store delivery. Through an ongoing analysis of selling trends, we
regularly update our product assortment by increasing quantities
of productive styles and eliminating less productive items. Our
relationships with our vendors generally are on a purchase order
basis and do not provide a contractual obligation to provide
adequate supply or acceptable pricing on a long-term basis.
BUILD-A-BEAR WORKSHOP, INC.
Distribution and Logistics
We own our 350,000 square-foot distribution center near Columbus,
Ohio which serves the majority of our stores in the United States and
Canada. We also contract with a third-party warehouse in southern
California to service our West Coast stores. The contract has a one
year term and is renewable. In Europe, we contract with a thirdparty distribution center in Selby, England under an agreement that
ends in December 2019. This agreement contains clauses that allow
for termination if certain performance criteria are not met.
Transportation from the warehouses to our stores is managed by
several third-party logistics providers. In the United States, Canada
and Europe, merchandise is shipped by a variety of distribution
methods, depending on the store and seasonal inventory demand.
Key delivery methods are direct trucks through third-party pool
points, ‘LTL’ (less-than truck load) deliveries, and direct parcel
deliveries. Shipments from our third-party distribution centers are
scheduled throughout the week in order to smooth workflow and
stores are grouped together by shipping route to reduce freight costs.
All items in our assortment are eligible for distribution, depending on
allocation and fulfillment requirements, and we typically distribute
merchandise and supplies to each store once or twice a week on a
regular schedule, which allows us to consolidate shipments in order
to reduce distribution and shipping costs. Back-up supplies, such as
Cub Condo® carrying cases and stuffing for the animals, are often
stored in limited amounts at local pool points.
Employees
As of January 3, 2015, we had approximately 900 full-time and
3,400 part-time employees in the United States, Canada, the United
Kingdom and Ireland. The number of part-time employees at all
locations fluctuates depending on our seasonal needs. None of our
employees are represented by a labor union, and we believe our
relationship with our employees is good.
Competition
We view the Build-A-Bear Workshop store experience as a distinctive
combination of entertainment and retail with limited direct
competition. Because our signature product is a stuffed animal, we
compete with toy retailers, such as Wal-Mart, Toys “R” Us, Target,
Kmart and other discount chains. Since we develop proprietary
products, we also compete indirectly with a number of companies
that sell stuffed animals in the United States, including, but not
limited to, Ty, Fisher Price, Mattel, Ganz, Applause, Boyd’s, Hasbro,
Commonwealth, Gund and Vermont Teddy Bear. Since we sell a
product that integrates merchandise and experience, we also view
our competition as any company that competes for family time and
entertainment dollars, such as movie theaters, amusement parks
and arcades, other mall-based entertainment venues and online
entertainment. Being a mall-based retailer, we also compete with
other mall-based retailers for prime mall locations, including various
apparel, footwear and specialty retailers.
2014 ANNUAL REPORT
5
We are aware of several small companies that operate “make
your own” teddy bear and stuffed animal stores or kiosks in retail
locations, but we believe none of those companies offer the breadth
of assortment nor depth of experience or operate as a national or
international retail company.
Intellectual Property and Trademarks
We believe our copyrights, service marks, trademarks, trade secrets,
patents and similar intellectual property are critical to our success,
and we intend, directly or indirectly, to maintain and protect these
marks and, where applicable, license the intellectual property and
the registrations for the intellectual property. Our patents have
expirations ranging from 2015 to 2024.
We have developed licensing and strategic relationships with some of
the leading retail and cultural organizations. We plan to continue to
add partnerships with companies that have strong, family-oriented
brands and provide us with attractive marketing and merchandising
opportunities. These relationships for specific products are generally
reflected in contractual arrangements for limited terms that are
terminable by either party upon specified notice. Specifically, we
have key strategic relationships with select companies in which we
feature their brands on products sold in our stores, including Disney®,
Hasbro, Sanrio®, Star Wars, and major professional and collegiate
sports along with other culturally relevant brands. Additionally, we
have developed promotional arrangements with select organizations.
Our arrangements with Major League Baseball teams, including
the Chicago Cubs®, St. Louis Cardinals™ and Pittsburg Pirates® have
featured stuffed animal giveaways at each club’s ballpark on a day
when our brand is highly promoted within the stadium.
Availability of Information
We make certain filings with the Securities and Exchange Commission
(the “SEC”), including our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and all
amendments and exhibits to those reports, available free of charge
in the Investor Relations section of our corporate website, http://
ir.buildabear.com, as soon as reasonably practicable after they are
filed with the SEC. The filings are also available through the SEC at
the SEC’s Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549 or by calling 1-800-SEC-0330. Also, these filings are
available on the internet at http://www.sec.gov. Our Annual Reports
to shareholders, press releases and investor updates are also
available on our website, free of charge, in the Investor Relations
section or by writing to the Investor Relations department at World
Bearquarters, 1954 Innerbelt Business Center Dr., St. Louis, MO 63114.
ITEM 1A. RISK FACTORS
We operate in a changing environment that involves numerous known
and unknown risks and uncertainties that could materially affect our
operations. The risks, uncertainties and other factors set forth below
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BUILD-A-BEAR WORKSHOP, INC.
may cause our actual results, performances or achievements to be
materially different from those expressed or implied by our forwardlooking statements. If any of these risks or events occur, our business,
financial condition or results of operations may be adversely affected.
Risks Related to Our Business
A decline in general global economic conditions could lead to
disproportionately reduced consumer demand for our products,
which represent relatively discretionary spending, and have an
adverse effect on our liquidity and profitability.
Since purchases of our merchandise are dependent upon
discretionary spending by our guests, our financial performance
is sensitive to changes in overall economic conditions that affect
consumer spending. Consumer spending habits are affected by,
among other things, prevailing economic conditions, levels of
employment, salaries and wage rates, consumer confidence and
consumer perception of economic conditions. A slowdown in the
United States, Canadian or European economies or in the economies
of the countries in which our franchisees operate or uncertainty as
to the economic outlook could reduce discretionary spending or
cause a shift in consumer discretionary spending to other products.
Any of these factors would likely result in lower net retail sales and
could also result in excess inventories, which could, in turn, lead to
increased merchandise markdowns and related costs associated
with higher levels of inventory and adversely affect our liquidity and
profitability. For example, for fiscal 2008 through 2010 and again in
2012, we attributed a portion of our decline in comparable store sales
to the slower economy in the United States and Europe.
We depend upon the shopping malls in which we are located to
attract guests to our stores and a decline in mall traffic could
adversely affect our financial performance and profitability.
While we invest in integrated marketing efforts and believe we are
more of a destination location than traditional retailers, we rely to
a great extent on consumer traffic in the malls in which our stores
are located. We rely on the ability of the malls’ anchor tenants,
generally large department stores, and on the continuing popularity
of malls as shopping destinations to attract high levels of consumer
traffic. We cannot control the development of new shopping malls,
the addition or loss of anchors and co-tenants, the availability or
cost of appropriate locations within existing or new shopping malls
or the desirability, safety or success of shopping malls. In addition,
consumer mall traffic may be reduced due to factors such as the
economy, civil unrest, actual or threatened acts of terrorism to
shopping malls, the impact of weather or natural disasters or a
decline in consumer confidence resulting from international conflicts
or war. A decrease in shopping mall traffic could have an adverse
effect on our financial condition and profitability.
If we are unable to generate interest in and demand for our
interactive retail experience and products, including being able to
2014 ANNUAL REPORT
identify and respond to consumer preferences in a timely manner,
our financial condition and profitability could be adversely affected.
We believe that our success depends in large part upon our ability to
continue to attract guests with our interactive shopping experience
and our ability to anticipate, gauge and respond in a timely manner
to changing consumer preferences and fashion trends. We cannot
assure you that there will continue to be a demand for our “makeyour-own stuffed animal” interactive experience, or for our stuffed
animals, animal apparel and accessories. A decline in demand for
our interactive shopping experience, our animals, animal apparel
or accessories, or a misjudgment of consumer preferences, fashion
trends or the demand for licensed products including those that are
associated with new movie releases could have a negative impact on
our business, financial condition and results of operations. Our future
success depends, in part, on the popularity and consumer demand
for brands of partner companies such as Disney, Marvel, Hasbro,
Nickelodeon and Lucasfilm. If we are not able to meet our contractual
commitments or are unable to maintain licensing agreements with
key partner brands, our business would be adversely effected.
There can be no certainty that licensed brands will continue to be
successful or maintain high levels of sales in the future and the timing
of future entertainment projects may not coincide with historical
dates impacting our ability to maintain sales levels. In addition, if
we miscalculate the market for our merchandise or the purchasing
preferences of our guests, we may be required to sell a significant
amount of our inventory at discounted prices or even below costs,
thereby adversely affecting our financial condition and profitability.
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, drive consumer demand for key
products and generate traffic for our stores.
We continue to update and evaluate our marketing initiatives,
focusing on building our brand, new product news, timely promotions
and rapidly changing consumer preferences. Our future growth and
profitability will depend in large part upon the effectiveness and
efficiency of our integrated marketing and advertising programs and
future marketing and advertising efforts that we undertake, including
our ability to:
• create greater awareness of our brand, interactive shopping
experience and products;
• convert consumer awareness into actual store visits and product
purchases;
• identify the most effective and efficient level of marketing spend;
• select the right geographic areas in which to market;
• determine the appropriate creative message and media mix for
marketing expenditures; and;
• effectively manage marketing costs (including creative and media)
in order to maintain acceptable operating margins and return on
marketing investment.
BUILD-A-BEAR WORKSHOP, INC.
Our planned marketing expenditures may not result in increased total
or comparable store sales or generate sufficient levels of product and
brand awareness which could have a material adverse effect on our
financial condition and profitability.
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 and damage to our reputation.
Information technology is a critically important part of our
business operations. We depend on information systems to process
transactions, manage inventory, operate our Web sites, purchase,
sell and ship goods on a timely basis, and maintain cost-efficient
operations. There is a risk that we could experience a business
interruption, theft of information, or reputational damage as a
result of a cyber-attack, such as an infiltration of a data center, or
data leakage of confidential information either internally or at our
third-party providers. We may experience operational problems
with our information systems as a result of system failures, system
implementation issues, viruses, malicious hackers, sabotage, or other
causes.
Our business involves the storage and transmission of customers’
personal information, such as consumer preferences and credit card
information. We invest in industry-standard security technology to
protect the Company’s data and business processes against the
risk of data security breaches and cyber-attacks. Our data security
management program includes identity, trust, vulnerability and threat
management business processes, as well as enforcement of standard
data protection policies such as Payment Card Industry compliance.
We measure our data security effectiveness through industry
accepted methods and remediate critical findings. Additionally, we
certify our major technology suppliers and any outsourced services
through accepted security certification measures. We maintain and
routinely test backup systems and disaster recovery, along with
external network security penetration testing by an independent
third party as part of our business continuity preparedness. Internet
privacy is a rapidly changing area and we may be subject to future
requirements and legislation that are costly to implement and
negatively impact our results.
While we believe that our security technology and processes are
adequate in preventing security breaches and in reducing cyber
security risks, given the ever-increasing abilities of those intent on
breaching cyber security measures and given our reliance on the
security and other efforts of third-party vendors, the total security
effort at any point in time may not be completely effective, and any
such security breaches and cyber incidents could adversely affect
our business. Failure of our systems, including failures due to cyberattacks that would prevent the ability of systems to function as
intended, could cause transaction errors, loss of customers and sales,
and could have negative consequences to us, our employees,
2014 ANNUAL REPORT
7
and those with whom we do business. Any security breach involving
the misappropriation, loss, or other unauthorized disclosure of
confidential information by us could also severely damage our
reputation, expose us to the risks of litigation and liability, and harm
our business. While we carry insurance that would mitigate the losses
to an extent, such insurance may be insufficient to compensate us for
potentially significant losses.
Our Web sites, including those for children, allow social interaction
between users. We currently obtain and retain personal information
about our Web site users, store shoppers and loyalty program
members. In addition, we obtain personal information about our
guests as part of their registration in our Find-A-Bear® identification
system. Federal, state and foreign governments have enacted or
may enact laws or regulations regarding the collection and use of
personal information, with particular emphasis on the collection
of information regarding minors. Such regulation may also include
enforcement and redress provisions.
We have a stringent, comprehensive privacy policy covering the
information we collect from our guests and have established security
features to protect our guest database and Web sites. While we
have implemented programs and procedures designed to protect
the privacy of people, including children, from whom we collect
information, and our Web sites are designed to be fully compliant
with the Federal Children’s Online Privacy Protection Act, there can
be no assurance that such programs will conform to all applicable
laws or regulations. If we fail to fully comply, we may be subjected
to liability and damage to our reputation. In addition, because our
guest database primarily includes personal information of young
children and young children frequently interact with our Web sites,
we are potentially vulnerable to charges from parents, children’s
organizations, governmental entities, and the media of engaging in
inappropriate collection, distribution or other use of data collected
from children. Additionally, while we have security features and chat
monitoring, our security measures may not protect users’ identities
and our online safety measures may be questioned which may result
in negative publicity or a decrease in visitors to our site. If site users
act inappropriately or seek unauthorized contact with other users of
the site, it could harm our reputation and, therefore, our business and
we could be subject to liability.
If we are unable to increase our total and comparable store sales,
our results of operations and financial condition could be adversely
affected.
Our consolidated comparable store sales increased by 1.6% in 2014
and 5.1% in 2013 following a multi-year decline. We believe the
principal factors that will affect comparable store results include the
following:
8
BUILD-A-BEAR WORKSHOP, INC.
• the continuing appeal of our concept;
• the effectiveness of our marketing efforts to attract new and
repeat guests;
• consumer confidence and general economic conditions;
• the impact of changes in governmental policies on consumer
sentiment and discretionary spending levels;
• the impact of store closures, relocations and openings in existing
markets;
• our ability to anticipate and to respond, in a timely manner, to
consumer trends;
• the continued introduction and expansion of our merchandise
offerings;
• mall traffic;
• competition for product offerings including in the online space;
• the impact of updates to our brand appearance and our store
design;
• the timing and frequency of national media appearances and
other public relations events; and
• weather conditions.
As a result of these and other factors, we may not be able to achieve
comparable stores sales growth in the future. If we are unable to do
so, our results of operations could be significantly harmed and we
may be required to record significant impairment charges.
We may not be able to evolve our store locations to align with market
trends or to effectively manage our overall portfolio of stores which
could adversely affect our ability to grow and could significantly
harm our profitability.
Our future results will largely depend on our ability to optimize store
productivity and profitability by strategically evolving our real estate
portfolio to align with market trends while selectively opening new
locations and systematically refreshing our store base. In 2012, we
announced a plan to reduce our store count in North America and
substantially completed this plan in 2014. From 2012 through 2014, we
closed 61 stores in North America. Our ability to manage our portfolio
of stores in future years and position stores in desirable locations
and operate stores profitably, particularly in multi-store markets, is
a key factor in our ability to achieve sustained profitable growth. We
cannot be certain when or whether desirable locations will become
available, the number of Build-A-Bear Workshop stores that we can
or will ultimately open, or whether any such new or relocated stores
can be profitably operated. We may decide to close other stores in
the future.
In July 2005, we opened a flagship store in New York City. Because
this store has much larger annual sales than our typical mall-based
stores, closing this store could have an adverse impact on our
revenues.
2014 ANNUAL REPORT
Additionally, in 2014 we operated eight stores located within other
retailers’ stores and as such are subject to the operational risks
of these retailers, including but not limited to, ineffective store
operations, labor disputes and negative publicity. If other retailers in
which we have stores are impacted by these factors, it could have a
negative impact on our sales and operating performance.
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 growth and profitability
could be harmed.
We lease all of our store locations. The majority of our store leases
contain provisions for base rent plus percentage rent based on sales
in excess of an agreed upon minimum annual sales level. A number
of our leases include a termination provision which applies if we do
not meet certain sales levels during a specified period, typically in
the third to fourth year and the sixth to seventh year of the lease,
which may be at either the landlord’s options or ours. Furthermore,
some of our leases contain various restrictions relating to change of
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 within the malls. We may not be
able to maintain or obtain favorable locations in desirable malls. The
terms of new leases may not be as favorable, which could cause an
increase in store expenses negatively impacting overall profitability.
If we execute termination rights, we may have expenses and charges
associated with those closures which could negatively impact our
profitability. Additionally, several large landlords dominate the
ownership of prime malls, particularly in the United States and
Canada, and because of our dependence on these landlords for a
substantial number of our locations, any significant erosion in their
financial conditions or our relationships with these landlords could
negatively affect our ability to obtain and retain store locations.
Further landlord consolidation may negatively impact our results of
operations.
Our leases in the United Kingdom and Ireland also typically contain
provisions requiring rent reviews every five years in which the
base rent that we pay is adjusted to current market rates. These
rent reviews require that base rents cannot be reduced if market
conditions have deteriorated but can be changed “upwards only”.
We may be required to pay base rents that are significantly higher
than we have projected. For example, past rent reviews have resulted
in increases as high as 30% in select locations within the United
Kingdom. As a result of these and other factors, we may not be able
to operate our European store locations profitably. If we are unable
to do so, our results of operations and financial condition could be
harmed and we may be required to record significant additional
impairment charges.
BUILD-A-BEAR WORKSHOP, INC.
In addition, the lease for our store in the Downtown Disney® District
at the Disneyland® Resort in Anaheim, California provides that the
landlord may terminate the lease at any time. As a result, we cannot
be assured that the landlord will not exercise its right to terminate this
lease.
We may not be able to operate our international company-owned
stores profitably.
We currently operate company-owned stores in the United Kingdom,
Canada, Ireland and Denmark. Our future success in international
markets may be impacted by differences in consumer demand,
regulatory and cultural differences, economic conditions, changes in
foreign government policies and regulations and potential restrictions
and costs to convert and repatriate currency, as well as other
risks that we may not anticipate. Brand awareness in international
markets may be lower than in the U.S. and we may face higher labor
and rent costs, as well as different holiday schedules. Although we
have realized benefits from our operations in the United Kingdom
and Ireland, we may be unable to continue to do so on a consistent
basis. In 2013 and 2014, we closed 8 stores in Canada. In 2012, we
recognized an impairment charge on all of the goodwill associated
with our UK acquisition along with the store assets at certain store
locations with poor operating results. In 2010, we closed all three of
our company-owned stores in France as we were unable to operate
them profitably. In February 2015, we opened our first companyowned store in Denmark.
Additionally, we conduct business globally in many different
jurisdictions with currencies other than U.S. dollars. Our results
could be negatively impacted by changes or fluctuations in currency
exchange rates since we report our consolidated financial results in
U.S. dollars.
Our merchandise is manufactured by foreign manufacturers and
we transact business in various foreign countries; therefore 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 and foreign currency fluctuations.
We purchase our merchandise from domestic vendors who contract
with manufacturers in foreign countries, primarily in China. Any event
causing a disruption of imports, including the imposition of import
restrictions or labor strikes or lock-outs, could adversely affect our
business. The flow of merchandise from our vendors could also
be adversely affected by financial or political instability in any of
the countries in which the goods we purchase are manufactured,
especially China, if the instability affects the production or export
of merchandise from those countries. We are subject to trade
restrictions in the form of tariffs or quotas, or both, applicable to the
products we sell as well as to raw material imported to manufacture
those products. Such tariffs or quotas are subject to change.
2014 ANNUAL REPORT
9
Our compliance with the regulations is subject to interpretation
and review by applicable authorities. Change in regulations or
interpretation could negatively impact our operations by increasing
the cost of and reducing the supply of products available to us. In
addition, decreases in the value of the U.S. dollar against foreign
currencies, particularly the Chinese renminbi, could increase the cost
of products we purchase from overseas vendors. The pricing of our
products in our stores may also be affected by changes in foreign
currency rates and require us to make adjustments which would
impact our revenue and profit in various markets.
We may suffer negative publicity or be sued if the manufacturers of
our merchandise ship any products that do not meet current safety
standards or production requirements or if our products are recalled
or cause injuries.
Although we require our manufacturers to meet our safety standards
and product specifications and submit our products for testing, we
cannot control the materials used by our manufacturers. If one of
these manufacturers ships merchandise that does not meet our
required standards, we could in turn experience negative publicity or
be sued.
Many of our products are used by small children and infants who may
be injured from usage if age grading or warnings are not followed.
We may decide or be required to recall products or be subject to
claims or lawsuits resulting from injuries. For example, we have
voluntarily recalled five products in the past six years due to possible
safety issues. While the vendors have historically reimbursed us for
certain, related expenses, negative publicity in the event of any recall
or if any children are injured from our products could have a material
adverse effect on sales of our products and our business, and related
recalls or lawsuits with respect to such injuries could have a material
adverse effect on our financial position. Additionally, we could incur
fines related to consumer product safety issues from the regulatory
authorities in the countries in which we operate. Although we
currently have liability insurance, we cannot assure you that it would
cover product recalls or related fines, and we face the risk that claims
or liabilities will exceed our insurance coverage. Furthermore, we
may not be able to maintain adequate liability insurance in the future.
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.
The success of our business depends upon the quality of associates
throughout our organization and our ability to attract and retain
qualified key employees. In June 2013, we hired a new Chief Executive
Officer who replaced our retiring Founder and Chief Executive Bear.
In 2013 and 2014, four other executive officers left the Company, three
executive officers joined the Company and the Company is currently
conducting a search for a new Chief Operations Officer. The success
of our business depends on effective transition of these positions.
During these transitions, organizational changes are likely to occur
10
BUILD-A-BEAR WORKSHOP, INC.
and we may not be able to retain key managers or associates. We
may incur expenses related to the transition in these positions that
could negatively impact the profitability of our business. The loss
of certain key employees, our inability to attract and retain other
qualified key employees or a labor shortage that reduces the pool
of qualified candidates could have a material adverse effect on our
business, financial condition and results of operations.
We rely on a few 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 do not own or operate any manufacturing facilities. For the
past three years, we purchased between 75% and 80% of our
merchandise from three vendors. These vendors in turn contract
for the production of merchandise with multiple manufacturing
facilities, located primarily in China and, beginning in 2014, in
Vietnam. Our relationships with our vendors generally are on a
purchase order basis and do not provide a contractual obligation
to provide adequate supply or acceptable pricing on a long-term
basis. Our vendors could discontinue sourcing merchandise for us
at any time. If any of our significant vendors were to discontinue
their relationship with us, or if the factories with which they contract
were to suffer a disruption in their production, we may be unable to
replace the vendors in a timely manner, which could result in shortterm disruption to our inventory flow or quality of the inventory as
we transition our orders to new vendors or factories which could, in
turn, disrupt our store operations and have an adverse effect on our
business, financial condition and results of operations. Additionally, in
the event of a significant price increase from these suppliers, we may
not be able to find alternative sources of supply in a timely manner
or raise prices to offset the increases, which could have an adverse
effect on our business, financial condition and results of operations.
If we are unable to effectively manage our international franchises,
attract new franchisees 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.
As of January 3, 2015, there were 71 traditional Build-A-Bear
Workshop international franchised stores. We cannot assure you
that our franchisees will be successful in identifying and securing
desirable locations or in operating their stores. International markets
frequently have different demographic characteristics, competitive
conditions, consumer tastes and discretionary spending patterns
than our existing owned and operated markets, which impact the
performance of these stores. Additionally, our franchisees may
experience financing, merchandising and distribution expenses and
challenges that are different from those we currently encounter in
our existing markets. The operations and results of our franchisees
could be negatively impacted by the economic or political factors in
the countries in which they operate or foreign currency fluctuations.
These challenges, as well as others, could have a material adverse
2014 ANNUAL REPORT
effect on our business, financial condition and results of operations.
For example, we have incurred $1.4 million, $1.1 million and $0.2
million of bad debt expense related to receivables from our
franchisees in fiscal 2014, 2013 and 2012, respectively.
The success of our franchising strategy will depend upon our ability
to attract and maintain qualified franchisees with sufficient financial
resources to develop and grow the franchise operation and upon the
ability of those franchisees to successfully develop and operate their
franchised stores. Franchisees may not operate stores in a manner
consistent with our standards and requirements, may not hire and
train qualified managers and other store personnel and may not
operate their stores profitably. As a result, our franchising operations
may not be profitable. Moreover, our brand image and reputation
may suffer. When franchisees perform below expectations we may
transfer those agreements to other parties, take over the operations
directly or discontinue the franchise agreement. Furthermore, the
interests of franchisees might sometimes conflict with our interests.
For example, whereas franchisees are concerned with their individual
business objectives, we are responsible for ensuring the success of
the Build-A-Bear brand and all of our stores.
The laws of the various foreign countries in which our franchisees
operate govern our relationships with our franchisees. These laws,
and any new laws that may be enacted, may detrimentally affect
the rights and obligations between us and our franchisees and could
expose us to additional liability.
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.
Other parties have asserted in the past, and may assert in the future,
trademark, patent, copyright or other intellectual property rights
that are important to our business. We cannot assure you that others
will not seek to block the use of or seek monetary damages or other
remedies for the prior use of our brand names or other intellectual
property or the sale of our products or services as a violation of their
trademark, patent or other proprietary rights. Defending any claims,
even claims without merit, could be time-consuming, result in costly
settlements, litigation or restrictions on our business and damage our
reputation.
In addition, there may be prior registrations or use of intellectual
property in the U.S. or foreign countries for similar or competing
marks or other proprietary rights of which we are not aware. In
all such countries it may be possible for any third party owner of a
national trademark registration or other proprietary right to enjoin
or limit our expansion into those countries or to seek damages for our
use of such intellectual property in such countries. In the event a claim
against us were successful and we could not obtain a license to the
BUILD-A-BEAR WORKSHOP, INC.
relevant intellectual property or redesign or rename our products or
operations to avoid infringement, our business, financial condition or
results of operations could be harmed. Securing registrations does
not fully insulate us against intellectual property claims, as another
party may have rights superior to our registration or our registration
may be vulnerable to attack on various grounds.
We are subject to risks associated with technology and digital
operations.
Our operations are subject to numerous technology related risks,
including risks related to the failure of the computer systems that
operate our point of sale and inventory systems, Web sites and
mobile sites and their related support systems. We are also subject
to risks related to computer viruses, telecommunications failures,
and similar disruptions. Also, we may require additional capital in the
future to sustain or grow our technological infrastructure and digital
commerce capabilities.
Business risks related to technology and digital commerce include
risks associated with the need to keep pace with rapid technological
change, Internet security risks, risks of system failure or inadequacy,
governmental regulation and legal uncertainties with respect to the
Internet, and collection of sales or other taxes by additional states or
foreign jurisdictions. If any of these risks materializes, it could have a
material adverse effect on our business.
We may suffer negative publicity or be sued if the manufacturers of
our merchandise violate labor laws or engage in practices that our
guests believe are unethical.
We rely on our sourcing personnel to select manufacturers with legal
and ethical labor practices, but we cannot control the business and
labor practices of our manufacturers. If one of these manufacturers
violates labor laws or other applicable regulations or is accused
of violating these laws and regulations, or if such a manufacturer
engages in labor or other practices that diverge from those typically
acceptable in the United States, we could in turn experience negative
publicity or be sued.
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 they
may operate inefficiently.
The operation of our stores is dependent on our ability to distribute
merchandise to locations throughout the United States, Canada
and Europe in a timely manner. We have a 350,000-square-foot
distribution center in Groveport, Ohio. We rely on this companyowned distribution center to receive, store and distribute
merchandise for the majority of our North America stores. We rely
on third parties to manage all of the warehousing and distribution
aspects of our business on the West Coast of the United States
2014 ANNUAL REPORT
11
and in Europe. Any significant interruption in the operation of the
distribution centers due to natural disasters or severe weather, as
well as events such as fire, accidents, power outages, system failures
or other unforeseen causes could damage a significant portion of our
inventory. These factors may also impair our ability to adequately
stock our stores and could decrease our sales and increase our costs
associated with our supply chain.
Many of our competitors have longer operating histories, significantly
greater financial, marketing and other resources, and greater name
recognition. We cannot assure you that we will be able to compete
successfully with them in the future, particularly in geographic
locations that represent new markets for us. If we fail to compete
successfully, our market share and results of operations could be
materially and adversely affected.
Our profitability could be adversely affected by fluctuations in
petroleum products prices.
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.
The profitability of our business depends to a certain degree
upon the price of petroleum products, both as a component of the
transportation costs for delivery of inventory from our vendors
to our stores and as a raw material used in the production of our
animal skins and stuffing. For example, our results in fiscal 2011 were
impacted by significant increases in fuel surcharges due to higher
petroleum products prices. We are unable to predict what the price
of crude oil and the resulting petroleum products will be in the future.
We may be unable to pass along to our customers the increased
costs that would result from higher petroleum prices. Therefore, any
such increase could have an adverse impact on our business and
profitability.
Our plans to leverage the Build-A-Bear brand to drive strategic
expansion into new sales and profit streams may not be successful.
Our objective to achieve sustained profitable growth depends in part
on our ability to use our brand and existing infrastructure as a base
to drive new lines of business. For example, we currently expect to
re-launch an out-bound licensing program in the future. If we are
unable to develop these new lines of business profitably, we may not
be able to achieve our long-term objectives.
Our market share may be adversely impacted at any time by a
significant variety of competitive threats.
We operate in a highly competitive environment characterized by low
barriers to entry. We compete against a diverse group of competitors.
Because we are primarily mall-based, we see our competition as
those mall-based retailers that compete for prime mall locations,
including various apparel, footwear and specialty retailers. As a
retailer whose signature product is a stuffed animal that is typically
purchased as a toy or gift, we also compete with big box retailers
and toy stores, as well as manufacturers that sell plush toys. Since
we offer our guests an experience as well as merchandise, we also
view our competition as any company that competes for our guests’
time and entertainment dollars, such as movie theaters, restaurants,
amusement parks and arcades. In addition, there are several small
companies that operate “make your own” teddy bear and stuffed
animal experiences in retail stores and kiosks. Although we believe
that currently none of these companies offers the breadth and depth
of the Build-A-Bear Workshop products and experience, we cannot
assure you that they will not compete directly with us in the future.
12
BUILD-A-BEAR WORKSHOP, INC.
We may expand our product assortment to include products
manufactured by other companies. If sales of such products do not
meet our expectations or are impacted by competitors’ pricing, we
may have to take markdowns or employ other strategies to liquidate
the product. If other companies do not meet quality or safety
standards or violate any manufacturing or labor laws, we may suffer
negative publicity and may not realize our sales plans.
Poor global economic conditions could have a material adverse
effect on our liquidity and capital resources.
Although we believe that our capital structure and credit facilities
will provide sufficient liquidity, there can be no assurance that our
liquidity will not be affected by changes in the capital markets or that
our capital resources will at all times be sufficient or at an acceptable
cost to satisfy our liquidity needs. Capital market conditions may
affect the renewal or replacement of our credit agreement, which
was originally entered into in 2000 and has been extended annually
since then and currently expires December 31, 2016.
Risks Related to Owning Our Common Stock
Fluctuations in our quarterly results of operations could cause the
price of our common stock to substantially decline.
Retailers generally are subject to fluctuations in quarterly results.
Our operating results for one period may not be indicative of results
for other periods, and may fluctuate significantly due to a variety of
factors, including:
• the profitability of our stores;
• increases or decreases in comparable store sales;
• changes in general economic conditions and consumer spending
patterns;
• seasonal shopping patterns, including whether the Easter holiday
occurs in the first or second quarter and other school holiday
schedules;
• the impact of a 53rd week in our fiscal year which occurs
approximately every six years, including fiscal 2014;
2014 ANNUAL REPORT
• the effectiveness of our inventory management;
• the timing and frequency of our marketing initiatives;
• changes in consumer preferences;
• the continued introduction and expansion of merchandise
offerings;
• actions of competitors or mall anchors and co-tenants;
• weather conditions;
• the timing of store closures, relocations and openings and related
expenses; and
• the timing and frequency of national media appearances and
other public relations events.
If our future quarterly results fluctuate significantly or fail to meet the
expectations of the investment community, then the market price of
our common stock could decline substantially.
Fluctuations in our operating results could reduce our cash flow and
we may be unable to repurchase shares at all or at the times or in the
amounts we desire or the results of the share repurchase program
may not be as beneficial as we would like.
In February 2015, our Board of Directors implemented a $10 million
share repurchase program, after terminating the previously existing
share repurchase plan under which we had repurchased 6.2
million shares of our common stock for an aggregate price of $46.2
million since February 2007. The new program does not require
the Company to repurchase any specific number of shares of our
common stock, and may be modified, suspended or terminated at
any time without prior notice. Shares repurchased under the program
will be subsequently retired. If our cash flow decreases as a result
of decreased sales, increased expenses or capital expenditures or
other uses of cash, we may not be able to repurchase shares of our
common stock at all or at times or in the amounts we desire. As a
result, the results of the share repurchase program may not be as
beneficial as we would like.
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.
Our basic corporate documents and Delaware law contain provisions
that might enable our management to resist a takeover. These
provisions:
• restrict various types of business combinations with significant
stockholders;
• provide for a classified board of directors;
• limit the right of stockholders to remove directors or change the
size of the board of directors;
BUILD-A-BEAR WORKSHOP, INC.
• limit the right of stockholders to fill vacancies on the board of
directors;
• limit the right of stockholders to act by written consent and to call a
special meeting of stockholders or propose other actions;
• require a higher percentage of stockholders than would otherwise
be required to amend, alter, change or repeal our bylaws and
certain provisions of our certificate of incorporation; and
• authorize the issuance of preferred stock with any voting rights,
dividend rights, conversion privileges, redemption rights and
liquidation rights and other rights, preferences, privileges, powers,
qualifications, limitations or restrictions as may be specified by our
board of directors.
These provisions may:
• discourage, delay or prevent a change in the control of our
company or a change in our management, even if such change
may be in the best interests of our stockholders;
• adversely affect the voting power of holders of common stock; and
• limit the price that investors might be willing to pay in the future for
shares of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Stores
We lease all of our store locations. As of January 3, 2015, we operated
324 retail stores located primarily in major malls throughout the
United States, Canada, Puerto Rico, the United Kingdom and Ireland
in our Retail segment. Our leases in the United Kingdom and Ireland
typically have rent reviews every five years in which the base rental
rate is adjusted to current market rates if they are higher than the
original rent agreed.
Non-Store Properties
In addition to leasing all of our store locations, we own a warehouse
and distribution center in Groveport, Ohio, which is utilized primarily
by our Retail segment. The facility is approximately 350,000
square feet and includes our web fulfillment site. We also lease
approximately 59,000 square feet for our corporate headquarters in
St. Louis, Missouri which houses our corporate staff, our call center
and our on-site training facilities. The lease was amended, effective
January 1, 2014 with a five-year term. In the United Kingdom, we lease
approximately 2,500 square feet for our regional headquarters in
Windsor, England. The lease commenced in August 2003 and can be
terminated at any time by either party giving notice of termination six
months prior to cancellation.
2014 ANNUAL REPORT
13
ITEM 3. LEGAL PROCEEDINGS
From time to time we are involved in ordinary routine litigation typical
for companies engaged in our line of business. We are involved in
several court actions seeking to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights
of others. As of the date of this Annual Report on Form 10-K, we are
not involved in any pending legal proceedings that we believe would
be likely, individually or in the aggregate, to have a material adverse
effect on our financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable
14
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
PART II
business which differentiates us from retailers in the Peer Group.
However, in the absence of any other readily identifiable peer group,
we believe the use of the Peer Group is appropriate.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange (NYSE)
under the symbol “BBW.” Our common stock commenced trading on
the NYSE on October 28, 2004. The following table sets forth the high
and low sale prices of our common stock for the periods indicated.
Fiscal 2014
High
First Quarter
$
9.49
$
Fiscal 2013
Low
High
Low
7.30 $
5.49 $
3.70
Second Quarter
$
15.43
$
9.34 $
7.10 $
4.90
Third Quarter
$
14.53
$
10.07 $
7.39 $
6.07
Fourth Quarter
$
21.22
$
12.17 $
10.35 $
6.97
The performance graph starts on January 2, 2010 and ends on
January 2, 2015, the last trading day prior to January 3, 2015, the
end of our fiscal 2014. The graph assumes that $100 was invested on
January 4, 2010 in each of our common stock, the Russell 2000 Index
and the Peer Group, and that all dividends were reinvested.
These indices are included only for comparative purposes as
required by SEC rules and do not necessarily reflect management’s
opinion that such indices are an appropriate measure of the relative
performance of our common stock. They are not intended to forecast
the possible future performance of our common stock.
Build-A-Bear Workshop, Inc
Russell 2000
SIC Codes 5600-5699
$450
$400
$350
$300
As of March 13, 2015, the number of holders of record of the
Company’s common stock totaled approximately 2,883.
$200
Performance Graph
$100
$250
$150
The following performance graph compares the 60-month
cumulative total stockholder return of our common stock, with the
cumulative total return on the Russell 2000® Index and an SECdefined peer group of companies identified as SIC Code 5600-5699
(the “Peer Group”). The Peer Group consists of companies whose
primary business is the operation of apparel and accessory retail
stores. Build-A-Bear Workshop is not strictly a merchandise retailer
and there is a strong interactive, entertainment component to our
$50
$0
1/2/10
1/1/11
12/31/11
12/29/12
12/28/13
1/3/15
100.00
156.24
173.01
79.96
158.28
390.80
100.00
126.86
121.56
138.56
195.89
204.94
100.00
128.92
146.37
174.42
223.27
242.14
* $100 invested on January 2, 2010 in stock or index, including reinvestment
of dividends.
Issuer Purchase of Equity Securities
Period
(a)
Total Number of Shares
(or Units) Purchased (1)
(b)
Average Price Paid Per Share
(or Unit)
(d)
Maximum Number
(or Approximate
Dollar Value) of Shares (or
Units) that May Yet
Be Purchased Under the
Plans or Programs (2)
(c)
Total Number of Shares
(or Units) Purchased as Part
of Publicly Announced
Plans or Programs (2)
Sep. 28, 2014 – Oct. 25, 2014
11,875
$
12.23
11,875
$
3,782,779
Oct. 26, 2014 – Nov. 22, 2014
–
$
–
–
$
3,782,779
3,782,779
Nov. 23, 2014 – Jan. 3, 2015
Total
705
$
19.89
–
$
12,580
$
12.66
11,875
$
(1) Includes 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.
(2) On February 25, 2015, we announced the termination of the share repurchase program that was adopted in 2008 and adopted a new repurchase program (the “2015
Share Repurchase Program”) which authorizes us to repurchase up to $10 million of our common stock until March 31, 2016, subject to further extension by the Board. Under
the 2015 Share Repurchase Program, we currently intend to purchase up to $10 million of our common stock in the open market (including through 10b5-1 trading plans),
through privately negotiated transactions, or through an accelerated repurchase transaction. The primary source of funding is expected to be cash on hand. The timing
and amount of share repurchases, if any, will depend on price, market conditions, applicable regulatory requirements, and other factors. The program does not require the
Company to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice. Shares repurchased under the
program will be subsequently retired. As of March 13, 2015, we had approximately $9.0 million of availability under the program.
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
15
Recent Sales of Unregistered Securities
this time, to pay cash dividends. Any future determination relating
to our dividend policy will be made at the discretion of our board of
directors and will depend on a number of factors, including future
earnings, capital requirements, financial conditions, future prospects
and other factors that the board of directors may deem relevant.
Additionally, under our credit agreement, we are prohibited from
declaring dividends without the prior consent of our lender, subject
to certain exceptions, as described in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Liquidity
and Capital Resources.”
There were no sales of unregistered securities during the past
three years.
Dividend Policy
No dividends were paid in 2014, 2013 or 2012. We anticipate that we
will retain any future earnings to support operations, to finance the
growth and development of our business and to repurchase shares
of our common stock from time to time and we do not expect, at
ITEM 6. SELECTED FINANCIAL DATA
Throughout this Annual Report on Form 10-K, we refer to our fiscal years ended January 3, 2015, December 28, 2013, December 29, 2012,
December 31, 2011 and January 1, 2011, as fiscal years 2014, 2013, 2012, 2011 and 2010, respectively. Our fiscal year consists of 52 or 53 weeks,
and ends on the Saturday nearest December 31 in each year. The 2014 fiscal year included 53 weeks and fiscal years 2013, 2012, 2011, and 2010
included 52 weeks. All of our fiscal quarters presented in this Annual Report on Form 10-K included 13 weeks, with the exception of the fourth
quarter of fiscal 2014, which included 14 weeks. When we refer to our fiscal quarters, or any three month period ending as of a specified date, we
are referring to the 13-week or 14-week period prior to that date.
The following table sets forth, for the periods and dates indicated, our selected consolidated financial and operating data. The balance sheet
data for fiscal 2014 and 2013 and the statement of operations and other financial data for fiscal 2014, 2013 and 2012 are derived from our audited
financial statements included elsewhere in this Annual Report on Form 10-K. The balance sheet data for fiscal 2012, 2011 and 2010, and the
statement of operations and other financial data for fiscal 2011 and 2010 are derived from our audited consolidated financial statements that
are not included in this Annual Report on Form 10-K. You should read our selected consolidated financial and operating data in conjunction with
our consolidated financial statements and related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” appearing elsewhere in this Annual Report on Form 10-K.
Fiscal Year
(Dollars in thousands, except share, per share,
per store and per gross square foot data)
2014
2013
2012
2011
2010
Statement of operations data:
Total revenues
$
392,354
$
379,069
$
380,941
$
394,375
$
401,452
Costs and expenses:
Cost of merchandise sold
Selling, general and administrative
211,832
220,738
230,181
234,227
239,556
164,445
160,708
165,516
162,881
164,618
–
33,670
–
Goodwill impairment
53
Interest expense (income), net
(259)
376,330
Total costs and expenses
381,187
16,024
Loss before income taxes
(250)
397,027
(48,429)
(6)
–
(81)
429,370
(2,118)
1,662
Income tax expense (benefit)
–
3
403,924
(2,652)
866
(2,472)
14,410
(2,576)
$
14,362
$
(2,112)
$
(49,295)
$
(17,062)
$
104
Basic
$
0.82
$
(0.13)
$
(3.02)
$
(0.98)
$
0.01
Diluted
$
0.81
$
(0.13)
$
(3.02)
$
(0.98)
$
0.01
Net income (loss)
Earnings (loss) per common share:
Shares used in computing common per share amounts:
16
Basic
16,908,001
16,465,138
16,331,672
17,371,315
18,601,465
Diluted
17,133,811
16,465,138
16,331,672
17,371,315
18,653,012
BUILD-A-BEAR WORKSHOP, INC.
2014 ANNUAL REPORT
Selected Financial Data
(continued)
Fiscal Year
(Dollars in thousands, except share, per share,
per store and per gross square foot data)
2014
2013
2012
2011
2010
Other financial data:
Retail gross margin ($) (1)
$
Capital expenditures, net (2)
176,838
$
153,477
45.6%
Retail gross margin (%) (1)
$
10,890
$
19,362
18,128
Depreciation and amortization
$
41.1%
145,687
$
38.9%
$
19,216
17,268
154,468
$
155,128
$
14,649
39.9%
$
21,422
12,248
40.1%
24,232
26,976
Cash flow data:
Cash flows provided by operating activities
$
34,884
$
19,058
$
16,542
$
17,234
$
22,021
Cash flows used in investing activities
$
(11,789)
$
(19,362)
$
(15,096)
$
(13,318)
$
(13,766)
Cash flows (used in) provided by financing activities
$
(1,783)
$
$
(2,902)
$
(15,811)
$
(7,216)
132
Store data (3):
Number of stores at end of period
245
253
283
287
20
10
8
11
15
265
263
291
298
305
57
58
58
56
52
2
2
2
2
2
Total Europe
59
60
60
58
54
Total stores
324
323
351
356
359
688,633
716,098
805,770
829,449
841,600
37,309
19,507
12,610
18,956
32,950
725,942
735,605
818,380
848,405
874,550
82,863
84,933
84,405
81,705
75,588
1,926
1,926
1,926
2,206
2,206
Total Europe
84,789
86,859
86,331
83,911
77,794
Total square footage
810,731
822,464
904,711
932,316
952,344
North America – Traditional
North America – Non-traditional
Total North America
Europe – Traditional
Europe – Non-traditional
290
Square footage at end of period (4)
North America – Traditional
North America – Non-traditional
Total North America
Europe – Traditional
Europe – Non-traditional
Average net retail sales per store: (5) (9)
North America
$
1,158
$
1,080
$
1,003
$
1,021
$
1,030
Europe
£
809
£
755
£
736
£
810
£
790
North America (6)
$
409
$
381
$
350
$
354
$
356
Europe (7)
£
567
£
525
£
511
£
562
£
Net retail sales per gross square foot: (9)
1.6%
Consolidated comparable store sales change (%) (8) (9)
5.1%
(3.3)%
551
(2.1)%
(2.0)%
Balance sheet data:
Cash and cash equivalents
Working capital
Total assets
Total stockholders’ equity
(1)
(2)
(3)
(4)
(5)
$
65,389
44,665
$
45,171
$
46,367
$
58,755
30,353
30,503
37,610
51,671
212,054
195,611
192,102
241,571
275,794
97,625
84,390
83,137
129,243
157,713
Retail gross margin represents net retail sales less cost of retail merchandise
sold, which excludes cost of wholesale merchandise sold. Retail gross margin
percentage represents retail gross margin divided by net retail sales.
Capital expenditures consist of leasehold improvements, furniture and fixtures,
land, buildings, computer equipment and software purchases, as well as
trademarks, intellectual property and deferred leasing fees.
Excludes our web stores. North American stores are located in the United
States, Canada and Puerto Rico. In Europe, stores are located in the United
Kingdom, Ireland and, prior to 2011, France.
Square footage for stores located in Europe is estimated selling square footage.
Average net retail sales per store represents net retail sales only from stores
open throughout the entire period in North America divided by the total number
of such stores.
BUILD-A-BEAR WORKSHOP, INC.
$
46,691
(6)
(7)
(8)
(9)
Net retail sales per gross square foot in North America represents net retail
sales from stores open throughout the entire period in North America divided
by the total gross square footage of such stores.
Net retail sales per selling square foot in Europe represents net retail sales from
stores open throughout the entire period in Europe divided by the total selling
square footage of such stores.
Comparable store sales percentage changes are based on net retail sales.
Stores are considered comparable beginning in their thirteenth full month of
operation.
Excludes our web stores and temporary and seasonal locations.
2014 ANNUAL REPORT
17
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management’s Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking
statements that involve risks and uncertainties. Our actual results may
differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but
are not limited to, those discussed in “Risk Factors” and elsewhere in
this Annual Report on Form 10-K. The following section is qualified in
its entirety by the more detailed information, including our financial
statements and the notes thereto, which appears elsewhere in this
Annual Report on Form 10-K.
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 our guests stuff, fluff,
dress, accessorize and name their own teddy bears and other
stuffed animals. As of January 3, 2015, we operated 324 Companyowned stores and had 71 franchised stores operating in international
locations under the Build-A-Bear Workshop brand. In addition
to our stores, we sell our products on our e-commerce Web sites,
buildabear.com and buildabear.co.uk.
We operate in three segments that share the same infrastructure,
including management, systems, merchandising and marketing, and
generate revenues as follows:
• Retail – Company-owned retail stores located in the United States,
Canada, Puerto Rico, the United Kingdom and Ireland, and two
web stores;
• International Franchising – Other international stores operated
under franchise agreements; and
• Commercial – Transactions with other business partners, mainly
comprised of wholesale product sales and licensing our intellectual
property, including entertainment properties, for third-party use.
Selected financial data attributable to each segment for fiscal 2014,
2013 and 2012, are set forth in Note 16 to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K.
For a discussion of the key trends and uncertainties that have
affected our revenues, income and liquidity, see the “— Revenues,”
“— Costs and Expenses” and “— Stores” subsections of this Overview,
along with the “Risk Factors” and “Results of Operations”.
We believe that we have an appealing retail store concept that, for
North American stores open for the entire year, averaged $1.2 million
in fiscal 2014, $1.1 million in fiscal 2013, and $1.0 million in fiscal 2012 in
net retail sales per store. Consolidated store contribution consists of
store location net retail sales less cost of product, marketing and store
related expenses. Non-store general and administrative expenses are
18
BUILD-A-BEAR WORKSHOP, INC.
excluded as are our web stores, locations not open for the full fiscal
year and deferred revenue adjustments. See “— Non-GAAP Financial
Measures” for a reconciliation of store contribution to net income
(loss). Store contribution as a percent of store location net retail sales
was 16.3% for fiscal 2014, 12.1% for fiscal 2013 and 8.6% for fiscal 2012.
Consolidated net income (loss) as a percentage of total revenues was
3.7% for fiscal 2014, (0.6)% for fiscal 2013, (12.9)% for fiscal 2012.
We believe that our 2014 improvement is a result of the successful and
consistent imp…
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