BUILD-A-BEAR WORKSHOP INC

Previous wording

As of August 3, 2024, we had 361 corporately-managed stores globally and 6 seasonal locations, 107 partner-operated locations operating through our "third-party retail" model in which we sell our products on a wholesale basis to other companies that execute our retail experience, and 80 international franchised stores, all under the Build-A-Bear Workshop brand. In addition to these stores, we sell products on our company-owned e-commerce sites and third-party marketplace sites, our franchisees sell products through sites that they manage as well as other third-party marketplace sites and other parties sell products on their sites under wholesale agreements.

Current wording

As of November 2, 2024, we had 362 corporately-managed stores globally and 4 seasonal locations, 123 partner-operated locations operating through our "third-party retail" model in which we sell our products on a wholesale basis to other companies that execute our retail experience, and 80 international franchised stores, all under the Build-A-Bear Workshop brand. In addition to these stores, we sell products on our company-owned e-commerce sites and third-party marketplace sites, our franchisees sell products through sites that they manage as well as other third-party marketplace sites and other parties sell products on their sites under wholesale agreements.

Previous wording

Selected financial data attributable to each segment for the thirteen and twenty-six weeks ended August 3, 2024 and July 29, 2023 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

Selected financial data attributable to each segment for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Previous wording

As of August 3, 2024, 47% of our corporately-managed stores were in an updated Discovery format. We also expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans. The future of our retail store fleet may include expansion into more non-traditional locations, including concourse format shops and by expansion in other locations outside of traditional malls.

Current wording

As of November 2, 2024, 51% of our corporately-managed stores were in an updated Discovery format. We also expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans. The future of our retail store fleet may include expansion into more non-traditional locations, including concourse format shops and by expansion in other locations outside of traditional malls.

Previous wording

Through our third-party retail model, there were 107 stores in operation at the end of the second quarter of 2024 with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry's and Girl Scouts of the USA. The third-party retail model is capital light for us, with the partner company building out and operating the workshops including providing the real estate location and covering the cost of labor and inventory, which is purchased from us on a wholesale basis. These locations are heavily-weighted to the hospitality industry, which allow us to further advance our focus on experience location expansion in non-traditional and tourist areas, as well as shop-in-shop arrangements within other retailers’ stores.

Current wording

Through our third-party retail model, there were 123 stores in operation at the end of the third quarter of 2024 with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry's and Girl Scouts of the USA. The third-party retail model is capital light for us, with the partner company building out and operating the workshops including providing the real estate location and covering the cost of labor and inventory, which is purchased from us on a wholesale basis. These locations are heavily weighted to the hospitality industry, which allow us to further advance our focus on experience location expansion in non-traditional and tourist areas, as well as shop-in-shop arrangements within other retailers’ stores.

Previous wording

*Total revenues.*Consolidated revenues increased 2.4%, primarily driven by a $2.3 million or 47% increase in Commercial revenue when compared to fiscal second quarter 2023. The increase was due to higher sales from our wholesale customers that was driven by new wholesale customers and opening 31 third-party retail stores since the second quarter of 2023.

Current wording

*Total revenues.*Consolidated revenues increased 11.0%, primarily driven by a $9.1 million or 9.1% increase in Net Retail sales and a $2.6 million or 43% increase in Commercial revenue when compared to the third fiscal quarter of 2023. The increase in net retail sales was driven primarily by growth at existing stores. The increased commercial revenue was due to higher sales from our wholesale customers that was driven by new wholesale customers and opening 38 third-party retail stores since the third quarter of 2023.

Previous wording

Net retail sales for the thirteen weeks ended August 3, 2024 were $103.5 million, compared to $103.5 million for the thirteen weeks ended July 29, 2023. The components of the similar performance are as follows (dollars in thousands):

Current wording

Net retail sales for the thirteen weeks ended November 2, 2024 were $109.5 million, compared to $100.4 million for the thirteen weeks ended October 28, 2023. The components of the improved performance are as follows (dollars in thousands):

Previous wording

Commercial revenue was $7.3 million for the thirteen weeks ended August 3, 2024 compared to $5.0 million for the thirteen weeks ended July 29, 2023. The $2.3 million increase is primarily due to increased sales volume from our wholesale accounts through our partner-operated third-party retail model.

Current wording

Commercial revenue was $8.6 million for the thirteen weeks ended November 2, 2024 compared to $6.0 million for the thirteen weeks ended October 28, 2023. The $2.6 million increase is primarily due to increased sales volume from our wholesale accounts through our partner-operated third-party retail model.

Previous wording

International franchising revenue was $1.0 million for the thirteen weeks ended August 3, 2024 compared to $0.8 million for the thirteen weeks ended July 29, 2023. The change is primarily the result of the timing of product shipments.

Current wording

International franchising revenue was $1.3 million for the thirteen weeks ended November 2, 2024 compared to $1.1 million for the thirteen weeks ended October 28, 2023. The change is primarily the result of the timing of product shipments.

Previous wording

*Retail gross margin.*Retail gross margin dollars increased $0.1 million to $55.8 million from $55.7 million for the thirteen weeks ended July 29, 2023. The retail gross margin rate increased 10 basis points compared to the prior year primarily driven by lower merchandise and freight costs offset by an increase in occupancy costs compared to the fiscal 2023 second quarter.

Current wording

*Retail gross margin.*Retail gross margin dollars increased $6.5 million to $59.4 million from $52.9 million for the thirteen weeks ended October 28, 2023. The retail gross margin rate increased 160 basis points compared to the prior year driven by lower merchandise, freight and occupancy costs compared to the third quarter of fiscal 2023.

Previous wording

*Selling, general and administrative.*SG&A expenses were $96.8 million, or 42.7% of consolidated revenue, for the twenty-six weeks ended August 3, 2024, compared to $94.0 million, or 41.0% of consolidated revenue, for the twenty-six weeks ended July 29, 2023. The increase in overall expense was driven by higher wage rates, expense timing and general inflationary pressures.

Current wording

*Selling, general and administrative.*SG&A expenses were $51.7 million, or 43.3% of consolidated revenue, for the thirteen weeks ended November 2, 2024, compared to $46.6 million, or 43.3% of consolidated revenue, for the thirteen weeks ended October 28, 2023. The consistent performance as a percentage of revenue was driven by lower expenses for advertising and information technology costs offset by higher wage rates, increased healthcare costs and general inflationary pressures.

Previous wording

Provision for income taxes. Income tax expense was $2.8 million with a tax rate of 23.8% for the thirteen weeks ended August 3, 2024, as compared to $2.1 million with a tax rate of 20.4% for the thirteen weeks ended July 29, 2023. In the second quarter of fiscal 2024 and 2023, the effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense. In the fourth quarter of fiscal 2023, the Company reversed the valuation allowance on deferred tax assets expected to be realized in the U.K. The Company remains in a full valuation in certain other foreign jurisdictions.

Current wording

Provision for income taxes. Income tax expense was $3.2 million with a tax rate of 24.5% for the thirteen weeks ended November 2, 2024, as compared to income tax expense of $2.8 million with a tax rate of 26.7% for the thirteen weeks ended October 28, 2023. In the third quarter of fiscal 2024 and 2023, the effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense. In the fourth quarter of fiscal 2023, the Company reversed the valuation allowance on deferred tax assets expected to be realized in the U.K. The Company remains in a full valuation in certain other foreign jurisdictions.

Previous wording

Net retail sales for the twenty-six weeks ended August 3, 2024 were $211.3 million, compared to $215.6 million for the twenty-six weeks ended July 29, 2023, a decreaseof $4.2 million, or 2.0%, compared to the prior year period. The components of this decrease are as follows (dollars in thousands):

Current wording

Net retail sales for the thirty-nine weeks ended November 2, 2024 were $320.8 million, compared to $316.0 million for the thirty-nine weeks ended October 28, 2023, an increaseof $4.9 million, or 1.5%, compared to the prior year period. The components of this increase are as follows (dollars in thousands):

Previous wording

International franchising revenue was $1.9 million for the twenty-six weeks ended August 3, 2024 compared to $2.0 million for the twenty-six weeks ended July 29, 2023. The change is primarily the result of the timing of product shipments.

Current wording

International franchising revenue was $3.3 million for the thirty-nine weeks ended November 2, 2024 compared to $3.2 million for the thirty-nine weeks ended October 28, 2023. The change is primarily the result of the timing of product shipments.

Previous wording

*Retail gross margin.*Retail gross margin dollars decreased $2.6 million to $114.3 million from $116.9 million for the twenty-six weeks ended July 29, 2023. The retail gross margin rate decreased 20 basis points compared to the prior year primarily driven by higher occupancy costs offset by a decrease in merchandise and warehousing and distribution costs compared to the fiscal 2023 first half.

Current wording

*Retail gross margin.*Retail gross margin dollars for the thirty-nine weeks ended November 2, 2024, increased $3.9 million to $173.7 million from $169.8 million for the thirty-nine weeks ended October 28, 2023. The retail gross margin rate increase of 40 basis points from the prior year was driven by lower merchandise costs partially offset by increased occupancy, warehousing and distribution costs compared to the first three quarters of fiscal 2023.

Previous wording

*Selling, general and administrative.*SG&A expenses were $49.2 million, or 44.0% of consolidated revenue, for the thirteen weeks ended August 3, 2024, compared to $48.3 million, or 44.2% of consolidated revenue, for the thirteen weeks ended July 29, 2023. The increase in overall expense was driven by higher wage rates, expense timing and general inflationary pressures.

Current wording

*Selling, general and administrative.*SG&A expenses were $148.4 million, or 42.9% of consolidated revenue, for the thirty-nine weeks ended November 2, 2024, compared to $140.5 million, or 41.7% of consolidated revenue, for the thirty-nine weeks ended October 28, 2023. The increase in overall expense was driven by higher wage rates, expense timing and general inflationary pressures.

Previous wording

*Interest income, net.*Interest income was $188,000 for the thirteen weeks ended August 3, 2024 compared to interest income of $167,000 for the thirteen weeks ended July 29, 2023. The increase in interest income compared to the prior year is the result of the Company's cash management strategy to invest cash on-hand in short-term, highly liquid investments.

Current wording

*Interest income, net.*Interest income was $0.7 million for the thirty-nine weeks ended November 2, 2024 compared to interest income of $0.5 million for the thirty-nine weeks ended October 28, 2023. The increase in interest income compared to the prior year is the result of the Company's cash management strategy to invest cash on-hand in short-term, highly liquid investments.

Previous wording

Provision for income taxes. Income tax expense was $6.3 million with a tax rate of 24.0% for the twenty-six weeks ended August 3, 2024, as compared to $6.9 million with a tax rate of 23.1% for the twenty-six weeks ended July 29, 2023. In the first half of fiscal 2024 and 2023, the effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the tax impact of equity awards vesting. In the fourth quarter of fiscal 2023, the Company reversed the valuation allowance on deferred tax assets expected to be realized in the U.K. The Company remains in a full valuation in certain other foreign jurisdictions.

Current wording

Provision for income taxes. Income tax expense was $9.5 million with a tax rate of 24.1% for the thirty-nine weeks ended November 2, 2024, as compared to $9.6 million with a tax rate of 24.0% for the thirty-nine weeks ended October 28, 2023. In the first thirty-nine weeks of fiscal 2024 and 2023, the effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the tax impact of equity awards vesting. In the fourth quarter of fiscal 2023, the Company reversed the valuation allowance on deferred tax assets expected to be realized in the U.K. The Company remains in a full valuation in certain other foreign jurisdictions.

Previous wording

EBITDA for the thirteen weeks ended August 3, 2024 increased $1.5 million, or 10.7% to $15.0 million from $13.5 million for the thirteen weeks ended July 29, 2023. The increase was driven by gross profit driven by increased commercial margins partially offset by higher SG&A expenses.

Current wording

EBITDA for the thirteen weeks ended November 2, 2024 increased $3.4 million, or 25.3% to $16.7 million from $13.3 million for the thirteen weeks ended October 28, 2023. The increase was driven by gross profit driven by increased retail and commercial margins partially offset by higher SG&A expenses.

Previous wording

As of August 3, 2024, we had a consolidated cash balance of $25.2 million, 83% of which was domiciled within the U.S. Historically, our cash requirements have been primarily for the relocation and remodeling of existing stores in our new design, opening of new stores, investments in information technology infrastructure and working capital. Over the past several years, we have met these requirements through capital generated from cash flow provided by operations. Additionally, during 2024 we have used cash on-hand to invest in short-term, highly liquid investments with original maturities of three months or less resulting in interest income of $0.6 million during the thirteen weeks ended August 3, 2024

Current wording

As of November 2, 2024, we had a consolidated cash balance of $29.0 million, 79% of which was domiciled within the U.S. Historically, our cash requirements have been primarily for the relocation and remodeling of existing stores in our new design, opening of new stores, investments in information technology infrastructure and working capital. Over the past several years, we have met these requirements through capital generated from cash flow provided by operations. Additionally, during 2024 we have used cash on-hand to invest in short-term, highly liquid investments with original maturities of three months or less resulting in interest income of $0.7 million during the thirty-nine weeks ended November 2, 2024.

Previous wording

Operating Activities. Cash provided by operating activities decreased $19.4 million for the twenty-six weeks ended August 3, 2024, as compared to the twenty-six weeks ended July 29, 2023. This decrease in cash from operating activities was primarily driven by decreased sales volume, resulting in lower net income, coupled with an increase in cash spent on inventory purchases.

Current wording

Operating Activities. Cash provided by operating activities decreased $5.2 million for the thirty-nine weeks ended November 2, 2024, as compared to the thirty-nine weeks ended October 28, 2023. This decrease in cash from operating activities was primarily driven by increased cash spent on inventory purchases in anticipation of the uncertainty in cost due to potential tariffs and higher accounts receivable resulting from higher commercial revenue offset by increases in payables and accrued expenses.

Previous wording

Investing Activities. Cash used in investing activities decreased $0.4 million for the thirteen weeks ended August 3, 2024, as compared to the twenty-six weeks ended July 29, 2023. This decrease in cash used in investing activities was primarily driven by lower spending on capital expenditures related to information technology projects.

Current wording

Investing Activities. Cash used in investing activities decreased $1.6 million for the thirty-nine weeks ended November 2, 2024, as compared to the thirty-nine weeks ended October 28, 2023. This decrease in cash used in investing activities was primarily driven by lower spending on capital expenditures.

Previous wording

Financing Activities. Cash used in financing activities decreased $9.4 million for the twenty-six weeks ended August 3, 2024, as compared to the twenty-six weeks ended July 29, 2023. This decrease in cash used in financing activities was driven primarily by the payment in 2023 fiscal first quarter of a special cash dividend of $22.1 million compared to quarterly dividends of $2.7 million and $2.9 million paid in the fiscal first and second quarters of 2024. Thiswas partially offset by an increase in repurchases of our common stock during the twenty-six weeks ended August 3, 2024.

Current wording

Financing Activities. Cash used in financing activities decreased $5.7 million for the thirty-nine weeks ended November 2, 2024, as compared to the thirty-nine weeks ended October 28, 2023. This decrease in cash used in financing activities was driven primarily by the payment in 2023 fiscal first quarter of a special cash dividend of $22.1 million compared to quarterly dividends of $2.9 million, $2.7 million and $2.7 million paid respectively in the first, second and third fiscal quarters of 2024. Thiswas partially offset by an increase in repurchases of our common stock during the thirty-nine weeks ended November 2, 2024.

Previous wording

Capital spending through thetwenty-six weeks ended August 3, 2024 totaled$5.7 million for information technology projects and new store openings, and we expect to spend approximately $18 to $20 million on capital expenditures in fiscal 2024.

Current wording

Capital spending through thethirty-nine weeks ended November 2, 2024 totaled$9.6 million for information technology projects and new store openings, and we expect to spend approximately $18 to $20 million on capital expenditures in fiscal 2024.

Previous wording

Total inventory at quarter end was $67.0 million, an increase of $0.6 million or 1% from the end of the fiscal 2023 second quarter. We are comfortable with the level and composition of our inventory.

Current wording

Total inventory at quarter end was $70.8 million, an increase of $6.3 million or 10% from the end of the fiscal 2023 third quarter. We accelerated the acquisition of our core products in anticipation of the uncertainty in cost due to potential tariffs. We are comfortable with the level and composition of our inventory.

Previous wording

We have various contractual or other obligations, including operating lease commitments and obligations under deferred compensation plans. As of August 3, 2024, we had purchase obligations totaling approximately $103.3 million, of which $30.2 million are due in the next 12 months. We believe our operating cash flows are sufficient to meet our material cash requirements for at least the next 12 months.

Current wording

We have various contractual or other obligations, including operating lease commitments and obligations under deferred compensation plans. As of November 2, 2024, we had purchase obligations totaling approximately $99.7 million, of which $29.0 million are due in the next 12 months. We believe our operating cash flows are sufficient to meet our material cash requirements for at least the next 12 months.

Previous wording

Weutilized $18.2 million in cash to repurchase 685,027 shares during the twenty-six weeks ended August 3, 2024, compared to using$11.1 million in cash to repurchase 526,706 shares during the twenty-six weeks ended July 29, 2023. Since the end of the second fiscal quarter, we utilized $2.0 million in cash to repurchase 73,274 shares leaving $5.9 million available under the August 2022 Stock Repurchase Program.

Current wording

Weutilized $23.0 million in cash to repurchase 832,944 shares during the thirty-nine weeks ended November 2, 2024, compared to using$15.2 million in cash to repurchase 672,734 shares during the thirty-nine weeks ended October 28, 2023. Since the end of the third fiscal quarter, we utilized $0.2 million in cash to repurchase 5,288 shares leaving $97.0 million available under the September 2024 Stock Repurchase Program.