BUILD-A-BEAR WORKSHOP INC annual report, FY2014

Vollständiges Dokument

Build-A-Bear Workshop, Inc. — FY 2013 Form 10-K

Business context and period. Specialty retailer of interactive, customizable stuffed animals, with retail, international franchising and commercial segments. Fiscal 2013 was the 52 weeks ended December 28, 2013. The company operated 323 company-owned stores and had 86 international franchise stores at year-end.

Financial performance and position

  • Revenue: $379.1 million, down 0.5% from $380.9 million in FY 2012. Net retail sales were $373.2 million, down $1.4 million; franchise fees were $3.6 million and commercial revenue was $2.3 million.
  • Profit: Net loss was $2.1 million, or $0.13 per diluted share, versus a $49.3 million loss, or $3.02 per share, in FY 2012. FY 2012 included a $33.7 million non-cash goodwill impairment charge. FY 2013 loss before taxes was $2.1 million.
  • Margins and expenses: Retail gross margin rose to $153.5 million from $145.7 million; its rate increased 220 basis points to 41.1%. Management attributed the improvement to fixed-occupancy leverage and higher merchandise margin. SG&A declined 2.9% to $160.7 million, including $5.3 million of management-transition, store-closing and asset-impairment expenses.
  • Cash flow: Operating cash flow was $19.1 million, compared with $16.5 million in FY 2012. Investing cash outflow was $19.4 million, including store and information-technology investments. Financing provided $0.1 million. Cash decreased $0.5 million to $44.7 million.
  • Liquidity and debt: Working capital was $31.9 million and current assets were $121.8 million against current liabilities of $89.8 million. There were no bank borrowings at year-end; the $35 million revolving facility had approximately $33.9 million available after a $1.1 million letter of credit. Stockholders’ equity was $84.4 million.
  • Other key measures: Consolidated comparable-store sales increased 5.1% after a 3.3% decline in FY 2012; North America increased 5.7% and Europe 2.9%. North American sales per gross square foot increased 9% to $381.

Material changes versus FY 2012

  • Despite 37 store closures, comparable sales gains and other store activity limited the net retail sales decline to $1.4 million. The company ended the year with 323 stores, down from 351.
  • Retail gross margin improved 220 basis points, and SG&A fell by $4.8 million. The much smaller annual net loss primarily reflects the absence of FY 2012’s $33.7 million goodwill impairment.
  • Cash from operations increased by $2.5 million, while capital expenditures rose to $19.4 million from $17.3 million.

Outlook, commentary, risks and unusual items

  • Management described FY 2013 as progress in a multi-year turnaround, citing real-estate optimization, reduced discounting, brand marketing, product-margin work and expense controls. Management attributed about 70% of North America’s comparable-sales increase to the underlying business and marketing, and the balance to real-estate actions.
  • For FY 2014, management expected capital expenditures of $15–18 million, planned 10–15 additional store closures, and intended to continue selective store refreshes, expense rationalization and supply-chain review. The company projected four openings and 13 closures, for 314 company-owned stores. FY 2014 includes a 14-week fourth quarter.
  • Key risks include discretionary consumer demand and mall traffic, the ability to sustain comparable-sales growth, store-lease economics, foreign currency and sourcing exposure, and dependence on three vendors for approximately 79% of FY 2013 inventory purchases. Most merchandise is sourced through manufacturers in China.
  • Operating-lease obligations totaled $200.8 million, with $43.6 million due in FY 2014; purchase obligations were $31.0 million, primarily merchandise orders. The company is appealing a UK customs assessment and had paid $2.9 million of disputed duty, recorded in receivables. Management believed the matter would not materially affect results, liquidity or financial position, while acknowledging an unfavorable outcome could be material in a period.
  • FY 2013 included $1.4 million of asset-impairment charges across expense categories and a $0.3 million impairment of trade credits. The Founder retired in July 2013, following the appointment of a new CEO in June. The company reported effective disclosure controls and internal control over financial reporting; the auditor gave unqualified opinions on the financial statements and internal controls.

Important facts for investors to verify

  • Whether comparable-store sales and the 41.1% retail gross-margin rate are sustainable, particularly after store closures and lower discounting.
  • Whether the turnaround can produce sustained company-wide profitability, beyond improved store contribution and the nonrecurrence of FY 2012’s goodwill charge.
  • Cash conversion and capital needs, including the planned FY 2014 capital expenditure range, operating-lease commitments and inventory levels.
  • Resolution and recoverability of the $2.9 million UK customs-duty appeal, and the effect of any adverse ruling.
  • Store-closure execution, lease exposures and the performance of UK and Ireland operations; also monitor the transition to new leadership.
  • Remaining share-repurchase authorization: approximately $6.4 million as of March 7, 2014. Repurchases are discretionary, and the company did not expect to pay cash dividends.