Search the web
Welcome, Guest
[Sign Out, My Account]

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BBW > SEC Filings for BBW > Form 10-K on 14-Mar-2013All Recent SEC Filings

Show all filings for BUILD A BEAR WORKSHOP INC | Request a Trial to NEW EDGAR Online Pro



Annual Report


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.


We are the leading, and only international, company providing a "make your own stuffed animal" interactive 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. Our concept, which we developed primarily for mall-based retailing, capitalizes on what we believe is the relatively untapped demand for experience-based shopping as well as the widespread appeal of stuffed animals. The Build-A-Bear Workshop experience appeals to a broad range of age groups and demographics, including children, teens, their parents and grandparents. As of December 29, 2012, we operated 283 traditional stores in the United States, Canada and Puerto Rico, 58 stores in the United Kingdom and two stores in Ireland, and had 91 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 site, and market our products and build our brand through our "virtual world" Web site,, which complements our interactive shopping experience and positively enhances our core brand value. We also operate non-traditional store locations in a Major League Baseball ballpark, a zoo, a science center, an airport and other temporary locations.

We operate in three segments that share the same infrastructure, including management, systems, merchandising and marketing, and generate revenues as follows:

• Company-owned retail stores located in the United States, Canada, Puerto Rico, the United Kingdom and Ireland, a web store and seasonal, event-based locations;

• Transactions with other business partners, mainly comprised of licensing our intellectual property, including entertainment properties, for third-party use and wholesale product sales; and

• International stores operated under franchise agreements.

Selected financial data attributable to each segment for fiscal 2012, 2011 and 2010, are set forth in Note 17 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 "- Expansion and Growth Potential" subsections of this Overview.

We believe that we have developed an appealing retail store concept that, for North American stores open for the entire year, averaged $1.0 million in fiscal 2012, fiscal 2011 and fiscal 2010 in net retail sales per store. For a discussion of the changes in comparable store sales in fiscal years 2012, 2011 and 2010, see "- Revenues" below. Store contribution, which consists of income
(loss) before income tax expense (benefit); interest; store depreciation, amortization and impairment; goodwill impairment; losses from investment in affiliate, preopening and general and administrative expense, excluding franchise fees, income from commercial activities and contribution from our web store, temporary and seasonal event-based locations, as a percentage of net retail sales, excluding revenue from our web store, temporary and seasonal and event-based locations, was 13.2% for fiscal 2012, 15.2% for fiscal 2011 and 15.3% for fiscal 2010. Total company net loss as a percentage of total revenues was 12.9% for fiscal 2012 and 4.3% for fiscal 2011. Total company net income as a percentage of total revenues was 0.0% for fiscal 2010. See "- Non-GAAP Financial Measures" for a reconciliation of store contribution to net (loss) income. The net loss in 2012 was primarily attributable to the decrease in comparable store sales and the impairment of the Company's goodwill related to its UK operations. The net loss in 2011 was primarily attributable to the decrease in comparable store sales and the recording of a valuation allowance on the Company's US deferred tax assets.

In 2012, our results were negatively impacted by the declining sales in the UK. In North America, the results reflect the early results of turnaround efforts, increased costs for marketing, newly imagined store design remodels and openings and store closings. In 2011, our results reflect stabilizing economic trends and modest mall traffic increases but continuing low levels of consumer confidence. In 2011, our store contribution percentage was essentially flat with 2010, as declining sales were offset by lower store expenses, specifically payroll and supplies. In 2010, our results reflect the challenging retail environment - economic recession, declining mall traffic, and slowing consumer spending - factors impacting many retailers and particularly our company given the discretionary nature of our products and our experience.

Our 2013 plan builds on steps taken in 2012 to balance our long term business goals while recognizing the continuing challenges of the retail environment. We plan to improve store productivity and profitability by strategically closing 50 to 60 stores during the next two years and reducing the square footage of an additional 10 to 15 stores by relocating them within the same malls. This initiative will allow us to focus on our business and align all operations around our goals of improving our comparable stores sales performance and store productivity, while also building our long term brand value. We currently expect to transfer, on average, approximately 20% of the sales from the closed stores to other stores in the same markets. In 2013, through March 8, we have closed 15 stores. Our current plans also include the relocation or remodel of approximately 25 locations in 2013 with the complete new design that feature a bold new look and enhanced experience as we continue to lead in the interactive experiential retail space.

While Build-A-Bear Workshop in North America will operate fewer stores that we expect will have higher sales volumes and profitability, we will continue to grow internationally, primarily through our franchisees. We also intend to increase shopping frequency by increasing new guest traffic to its stores, specifically focusing on families with children and intensifying digital engagement to increase visits from our existing guests and by reinforcing our store as a top destination for gifts. In 2009, we implemented cost reduction initiatives that resulted in approximately $25 million in pre-tax savings. We were able to maintain these savings in 2010 and 2011 and saved an additional $3 million in 2011. We achieved an additional $7.5 million in savings in 2012 that were used to support sales-driving marketing initiatives and were partially offset by product cost increases. We ended fiscal 2012 with no borrowings under our bank loan agreement and with $45 million in cash and cash equivalents after investing $17 million in capital projects and $1 million in share repurchases.

Following is a description and discussion of the major components of our statement of operations:


Net retail sales: Net retail sales are revenues from retail sales (including our web store and other non-store locations), are net of discounts, exclude sales tax, include shipping and handling costs billed to customers, and are recognized at the time of sale. Revenues from gift cards are recognized at the time of redemption. Our guests use cash, checks, gift cards and third party credit cards to make purchases. We classify stores as new, non-comparable and comparable stores. Stores enter the comparable store calculation in their thirteenth full month of operation. Our web store and temporary, seasonal and event-based locations are not included in our store count or in our comparable store calculations. Non-comparable stores also result from a store relocation or remodel that results in a significant change in square footage. The net retail sales for that location are excluded from comparable store sales calculations until the thirteenth full month of operation after the date of the change.

We have a loyalty program with a frequent shopper reward feature, the Stuff Fur Stuff club. Members of the program receive one point for every dollar spent and receive awards after reaching certain point thresholds. On a quarterly basis, an estimate of the obligation related to the program, based on actual points and awards outstanding and historical point conversion and award redemption patterns, is recorded as an adjustment to deferred revenue and net retail sales. At the time of redemption of the award, the deferred revenue obligation is reduced, and a corresponding amount is recognized in net retail sales. As the awards can be earned or redeemed at any of our store locations, we account for changes in the deferred revenue account at the total company level only. Therefore, when we refer to net retail sales by location, such as comparable stores or new stores, these amounts do not include any changes in the deferred revenue amount. See "---Critical Accounting Estimates" for additional details on the accounting for the deferred revenue under our customer loyalty program.

We use net retail sales per gross square foot and comparable store sales as performance measures for our business. The following table details net retail sales per gross square foot by age of store for the periods presented:

                                               Fiscal            Fiscal            Fiscal
                                                2012              2011              2010
Net retail sales per gross square foot - North America (1) (2)
Store Age > 5 years (247 stores in 2012,

220 stores in 2011) $ 353 $ 362 $ 370 Store Age 3-5 years (19 stores in 2012,
56 stores in 2011) $ 301 $ 315 $ 321 Store Age <3 years (3 stores in 2012, 4
stores in 2011) $ 464 $ 369 $ 317 All comparable stores $ 350 $ 354 $ 356

(1) Net retail sales per gross square foot represents net retail sales from North American stores open throughout the entire period divided by the total gross square footage of such stores. Calculated on an annual basis only.

(2) Excludes our web store, temporary and seasonal and event-based locations.

The percentage increase (or decrease) in comparable store sales for the periods presented below is as follows:

                                               Fiscal             Fiscal             Fiscal
                                                2012               2011               2010
Comparable store sales change - North America (%) (1) (2)
Store Age > 5 years (247 stores in 2012,
220 stores in 2011)                                  (2.0 )%            (2.1 )%            (0.4 )%
Store Age 3-5 years (19 stores in 2012,
56 stores in 2011)                                   (3.2 )%            (5.1 )%            (3.3 )%
Store Age <3 years (3 stores in 2012, 4
stores in 2011)                                       2.6 %              1.0 %             (3.8 )%
Total comparable store sales change                  (2.0 )%            (2.5 )%            (1.2 )%

Comparable store sales change -
Europe (%) (1) (2)                                   (8.4 )%            (0.2 )%            (5.5 )%

Comparable store sales change -
Consolidated (%) (1) (2)                             (3.3 )%            (2.1 )%            (2.0 )%

(1) Comparable store sales percentage changes are based on net retail sales and stores are considered comparable beginning in their thirteenth full month of operation.

(2) Excludes our web store, temporary and seasonal and event-based locations.

Fiscal 2012 consolidated comparable store sales decreased by 3.3%, including an 8.4% decrease in Europe and a 2.0% decrease in North America (full year comparable store sales are compared to the 52 week period ended Dec. 31, 2011). We believe the primary drivers of the overall decline in consolidated comparable store sales for the full year were as follows:

• In the first half of 2012, we had benefit from higher redemption rates and transaction value of our holiday gift cards and from a promotion in the United States with McDonald's Happy Meals® that drove awareness of our brand and brought traffic to our stores resulting in slightly positive comparable store sales in North American through the first twenty-six weeks.

• In the fiscal 2012 third quarter, we experienced a decline in the number of transactions compared to the 2011 third quarter which benefitted from a strong product offering that was tied to a major theatrical release supported by studio marketing and advertising.

• In the fiscal 2012 fourth quarter, we believe our new brand building marketing campaign in the United States along with a return to traditional holiday product offerings resulted in an increase in North American comparable store sales.

• In the United Kingdom, we believe the negative economic conditions contributed to a continued decline in consumer sentiment and a corresponding decline in spending that negatively impacted our comparable store sales throughout the year.

Fiscal 2011 consolidated comparable store sales decreased by 2.1%, including a 0.2% decrease in Europe and a 2.5% decrease in North America (full year comparable store sales are compared to the 52 week period ended Jan. 1, 2011). We believe the overall decline in consolidated comparable store sales for the full year was attributed primarily to the following factors:

· Through the third quarter, we had experienced a 0.9% decrease in consolidated comparable store sale. Growth in third quarter sales, which resulted from improved merchandise assortments and successful promotional events, only partially offset comparable stores sales declines in the first half of the year, which were primarily driven by a decline in transactions and negative consumer sentiment and spending in the UK.

· Further sales declines in the fourth quarter, attributable to underperforming licensed movie product, resulted in a decline for the full year.

Commercial revenue: Commercial revenue includes the company's transactions with other businesses, mainly through wholesale and licensing transactions. Revenue from licensing activities is generally based on a percentage of sales made by licensees to third parties and is recognized at the time the product is shipped by the licensee or at the point of sale. We have entered into a number of licensing arrangements whereby third parties manufacture and sell to other retailers merchandise carrying the Build-A-Bear Workshop trademark. Revenue from wholesale product sales includes revenue from merchandise sold at stores operated by third parties under licensing agreements like Landry's restaurants. In 2010, it also includes two transactions totaling $6.4 million with no associated gross margin.

Franchise fees: We receive an initial, one-time franchise fee for each master franchise agreement which is amortized to revenue over the life of the respective franchise agreements, which extend for periods up to 25 years. Master franchise rights are typically granted to a franchisee for an entire country or countries. Continuing franchise fees are based on a percentage of sales made by the franchisees' stores and are recognized as revenue at the time of those sales.

As of December 29, 2012, we had 91 stores, including 17 opened and five closed in fiscal 2012, operating under franchise arrangements in the following countries:

                             Germany             21
                             Australia           14
                             Mexico              10
                             Japan                8
                             Denmark              8
                             South Africa         6
                             Thailand             6
                             Gulf States (1)      6
                             Singapore            4
                             Norway               3
                             Sweden               3
                             Brazil               2
                             Total               91

(1) Gulf States agreement includes Kuwait, Bahrain, Qatar, Oman and the United Arab Emirates

Costs and Expenses

Cost of merchandise sold and retail gross margin: Cost of merchandise sold includes the cost of the merchandise, including royalties paid to licensors of third party branded merchandise; store occupancy cost, including store depreciation and store asset impairment charges; cost of warehousing and distribution; packaging; stuffing; damages and shortages; and shipping and handling costs incurred in shipment to customers. Retail gross margin is defined as net retail sales less the cost of retail merchandise sold, which excludes cost of wholesale merchandise sold.

Selling, general and administrative expense: These expenses include store payroll and benefits, advertising, credit card fees, store supplies and preopening expenses as well as central office general and administrative expenses, including costs for virtual world maintenance, management payroll, benefits, stock-based compensation, travel, information systems, accounting, insurance, normal store closings, legal and public relations. These expenses also include depreciation and amortization of central office leasehold improvements, furniture, fixtures and equipment as well as the amortization of intellectual property costs.

In 2009, we achieved $22 million in savings in selling, general and administrative expenses including marketing, central office payroll and outside services. We were able to maintain these savings in 2010 and 2011. In 2012, we saved an additional $4 million in selling general and administrative expenses that were used to support sales driving marketing initiatives. Other store expenses such as credit card fees and supplies historically have increased or decreased proportionately with net retail sales.

We have share-based compensation plans covering the majority of our management groups and our Board of Directors. We account for share-based payments utilizing the fair value recognition provisions of Accounting Standards Codification (ASC)
Section 718 - Stock Compensation. We recognize compensation cost for equity awards over the requisite service period for the entire award. In 2012, 2011 and 2010, we recorded stock based compensation of approximately $3.6 million, $4.6 million and $4.8 million, respectively.


Company-owned stores:

The number of Build-A-Bear Workshop stores in the United States, Canada, Puerto
Rico, the United Kingdom, Ireland and France for the last three fiscal years
along with the projections for fiscal 2013 can be summarized as follows:

                              Fifty-two Weeks Ended December 28, 2013 - Projected
                    December 29,                                               December 28,
                        2012              Opened             Closed                2013
  North America
  Traditional                 283               2                  (34 )                 251
  Non-traditional               8               -                   (2 )                   6
                              291               2                  (36 )                 257

  Europe                       60               -                   (1 )                  59
  Total                       351               2                  (37 )                 316

                                    Fifty-two Weeks Ended December 29, 2012
                        December 31,                                      December 29,
                            2011            Opened         Closed             2012
      North America
      Traditional                 287             2              (6 )               283
      Non-traditional              11             1              (4 )                 8
                                  298             3             (10 )               291

      Europe                       58             2               -                  60
      Total                       356             5             (10 )               351

                                    Fifty-two Weeks Ended December 31, 2011
                          January 1,                                      December 31,
                             2011           Opened         Closed             2011
       North America
       Traditional                290             2              (5 )               287
       Non-traditional             15             2              (6 )                11
                                  305             4             (11 )               298

       Europe                      54             5              (1 )                58
       Total                      359             9             (12 )               356

Our long term store real estate goal is to improve our stores' sales productivity and profitability. Today we believe that the optimal number of Build-A-Bear Workshop stores in North America is between 225 and 250 and approximately 60 to 70 in the United Kingdom and Ireland for a total of 285 to 320 stores. We currently expect to reach the optimal level in North America with the closure of 50 to 60 stores in fiscal 2013 and 2014. Locations to close and the timing of closures are subject to ongoing negotiations and overall economic considerations as we continually reevaluate our market repositioning and optimization plans.

Integral to the success of our real estate optimization strategies is the opening of our new store design which gives certain stores destination appeal and increases productivity in the market. The new design merges Build-A-Bear Workshop's iconic hands-on bear-making process with the power of technology to provide an updated, highly interactive experience for our guests. As of March 8, 2013, we have opened six of these stores, one new store and five remodels or relocations. We expect to open 25 additional remodeled locations by the end of 2013. In 2012, we also opened one traditional store and one non-traditional store in North America and two traditional stores in the UK. The traditional store in North America is a reopening in a mall that had been closed since 2010 due to flooding.

We have been aggressively renegotiating rents and executing short term extensions to line up lease dates within markets as part of an overall strategic plan to optimize our store locations and market positioning. As part of this strategy, we will continue to close underperforming stores in conjunction with natural lease expirations and kick out clauses, primarily in multi-store markets. In these markets, we currently expect to maintain approximately 20% of the sales from closing stores by transferring customers to other locations in the same market. We closed 10 and 12 stores in fiscal 2012 and fiscal 2011, respectively. We currently anticipate closing approximately 35 to 40 stores, including certain non-traditional store locations, in 2013 and approximately 20 additional stores in 2014. As a result, at the end of fiscal 2013, we anticipate that we will have approximately 310 traditional stores, 251 in North America and 59 in Europe and six non-traditional stores. In 2013 through March 8, we have closed 15 stores.

Non-traditional Store Locations:

In 2004 we began offering merchandise in seasonal, event-based locations such as Major League Baseball ballparks. As of December 29, 2012, we had one location each in a ballpark, a zoo, a science center, an airport and a hospital. In 2010, we opened our first temporary stores, which generally have lease terms of six to eighteen months and are excluded from our store count. These locations are intended to capitalize on short-term opportunities in specific locations. As of December 29, 2012, we operated four temporary stores.

Commercial Revenue:

In fiscal 2004, we began entering into license agreements pursuant to which we receive royalties on Build-A-Bear Workshop brand products produced and sold by third parties. These agreements generated revenue of $1.1 million in 2012, $1.8 million in 2011 and $2.8 million in 2010. Wholesale revenue is primarily generated under agreements with third-parties who operate Build-A-Bear Workshop locations or sell our product in agreed-upon outlets. These agreements generated revenue of $1.7 million in 2012, $2.1 million in 2011 and $2.0 million in 2010. In addition to our normal wholesale business, in 2010, we had two wholesale transactions totaling $6.4 million with no gross margin.

International Franchise Revenue:

Our first franchisee location was opened in November 2003. The number of
international, franchised stores opened and closed for the periods presented
below can be summarized as follows:

                                                    Fiscal year
                                            2012       2011       2010

                     Beginning of period     79         63          65
                     Opened                  17         19          10
                     Closed                  (5 )       (3 )       (12 )
                     End of period           91         79          63

As of December 29, 2012, we had 12 master franchise agreements, which typically grant franchise rights for a particular country or group of countries, covering an aggregate of 16 countries. In the ordinary course of business, we anticipate signing additional master franchise agreements in the future and terminating other such agreements. We expect our current franchisees to open eight to twelve stores in fiscal 2013. We believe there is a market potential for approximately 300 international stores outside of the United States, Canada, the United Kingdom and Ireland, which we expect to be operated primarily by new and existing franchisees.

Results of Operations

2012 Overview

While fiscal 2012 was a challenging year, with an overall decline in comparable store sales, significant impairment charges and a decline in store contribution, we made significant progress on our strategic objectives. We announced our plans to close 50 to 60 stores by the end of 2014 and introduced our innovative new . . .

  Add BBW to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BBW - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now

Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.