Build-A-Bear Workshop, Inc. — Q2 2021 Form 10-Q
Reporting period: Unaudited 13 weeks ended July 31, 2021; year-to-date figures cover 26 weeks. Dollar amounts below are in millions unless stated otherwise. The company operates direct-to-consumer retail and e-commerce, commercial licensing and wholesale, and international franchising businesses.
Financial performance
| Metric | Q2 2021 | Q2 2020 | 26 weeks 2021 | 26 weeks 2020 |
|---|---|---|---|---|
| Revenue | $94.7 | $40.4 | $186.4 | $87.0 |
| Gross profit | $50.4 | $7.5 | $98.8 | $15.6 |
| Gross margin | 53.2% | 18.7% | 53.0% | 17.9% |
| SG&A | $40.9 | $21.5 | $76.2 | $48.2 |
| Net income (loss) | $6.8 | $(13.9) | $17.2 | $(35.1) |
| Diluted EPS | $0.42 | $(0.93) | $1.08 | $(2.35) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $18.4 | $1.9 |
- Q2 revenue rose 134.7% year over year; net retail sales increased 132.1%. The comparison is heavily affected by pandemic-related store closures in 2020.
- Q2 retail gross margin was 53.3%, up from 23.1%. Management attributed the improvement to higher store sales, fixed-occupancy cost leverage following rent negotiations, and improved merchandise margin.
- SG&A increased as stores reopened, full corporate salaries resumed, and marketing and performance-incentive spending rose. SG&A declined as a share of revenue to 43% in Q2 from 53%.
Liquidity, cash flow and obligations
- At July 31, cash and cash equivalents were reported as $51.1 million on the balance sheet; the cash flow note distinguishes $49.4 million of cash equivalents and $1.7 million of restricted cash. Cash, cash equivalents and restricted cash increased $16.3 million during the first half.
- First-half investing cash outflow was $1.6 million, primarily capital expenditures; financing cash outflow was $0.6 million. Capital spending was $1.6 million through the period, with approximately $10 million expected for fiscal 2021.
- No revolving-credit borrowings were outstanding. The $25 million secured facility had approximately $11.7 million available after a $0.75 million letter of credit, subject to borrowing-base limits.
- Operating lease liabilities totaled $117.9 million, including $28.0 million current and $89.9 million long-term. Approximately $2.3 million of deferred rent remained payable during the rest of fiscal 2021.
- Current assets were $116.0 million and current liabilities $85.8 million. No off-balance-sheet arrangements were reported.
Outlook, commentary and risks
- Management expected fiscal 2021 revenue and profit to grow compared with both fiscal 2020 and fiscal 2019, but provided no numerical guidance. It noted that pent-up demand and stimulus may have benefited results, while also crediting pre-pandemic and accelerated initiatives.
- All corporately managed stores were open at quarter-end; the company had 352 corporately managed stores and 74 franchised stores. Store traffic remained below historical levels, while transaction values exceeded 2019 levels across geographies.
- Key priorities were digital and entertainment initiatives, expanded e-commerce and omnichannel capabilities, evolving store formats, and maintaining a strong balance sheet.
- Risks include renewed COVID-related closures or restrictions, uncertain consumer traffic and discretionary spending, reliance on a limited number of global suppliers, potential supply disruption and cost inflation, and changes in consumer preferences. The company expected inflationary cost impacts in the remainder of fiscal 2021 but did not quantify them. Results are seasonal, with sales historically highest in the fourth quarter.
- Capitalized entertainment production costs were $5.3 million, with a significant production expected to be released in late October 2021. The company recorded $0.9 million of U.K. business and restart grants in the first half.
- A disputed U.K. customs-duty receivable had a $4.6 million gross balance and a $3.7 million reserve, leaving $0.9 million net; appeal proceedings were ongoing. The company stated it did not expect a material adverse impact.
Most important facts for investors to verify
- How much of the sharp year-over-year sales and margin rebound reflects reopened stores and an unusually weak 2020 comparison, versus durable underlying demand and e-commerce growth.
- Whether the stated fiscal 2021 growth outlook remains achievable given COVID uncertainty, supply-chain constraints, inflation and fourth-quarter seasonality.
- The distinction between reported balance-sheet cash and cash-flow cash including restricted cash, and the borrowing-base conditions on the unused credit facility.
- Progress and returns on the entertainment production investment, planned capital spending, and the status of the U.K. customs appeal.