Build-A-Bear Workshop, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended February 3, 2024 (53 weeks), compared with the 52-week year ended January 28, 2023. The filing was dated April 18, 2024. Build-A-Bear operates corporate stores and e-commerce, commercial wholesale/licensing activities, and international franchising.
Financial performance
- Revenue: $486.1 million, up 3.9% from $467.9 million. Net retail sales were $456.2 million (+2.2%); commercial revenue was $25.4 million (+37.2%); international franchising revenue was $4.5 million (+40.6%). Commercial growth was attributed primarily to third-party retail volume, and franchising growth to more stores in operation.
- Profit and margins: Net income was $52.8 million, up from $48.0 million; diluted EPS was $3.65 versus $3.15. Pre-tax income reached a company-record $66.3 million. Consolidated gross margin was 54.4%, versus 52.5%; retail gross margin was approximately 54.7%, up from 52.6%. Net margin was 10.9%, versus 10.3%.
- Expenses: SG&A rose to $199.0 million from $183.9 million, and increased to 40.9% of revenue from 39.3%. The filing cites higher store wages, growth-related talent and other investment, and advertising expense, which increased 23.9% to $24.3 million. Lower freight costs supported improved gross margin.
- Cash flow and investment: Operating cash flow was $64.3 million, up from $47.3 million. Capital expenditures were $18.3 million, primarily for IT projects and new stores. Cash used in financing was $43.9 million, including $20.5 million of share repurchases and about $22.1 million of dividends.
- Liquidity and debt: Cash, cash equivalents and restricted cash were $44.3 million, including $43.9 million of cash and cash equivalents. The company had no revolver borrowings and reported approximately $24.7 million available under its $25 million secured facility. Current assets were $127.8 million and current liabilities $83.7 million. Balance-sheet operating lease liabilities totaled $83.6 million; these are lease obligations, not reported borrowings.
- Other indicators: Inventory fell $7.0 million to $63.5 million. North American net retail sales per square foot increased to $495 from $479; U.K. sales per square foot decreased to £629 from £679.
Changes versus prior year
- Reported revenue growth included a $6.9 million contribution from the 53rd week. Retail sales also benefited from new stores and gift-card breakage, while existing-store sales were down $0.1 million and e-commerce sales down $3.2 million. Store closures reduced sales by $4.0 million.
- Net retail sales increased by $10.0 million overall; commercial and franchising revenue grew faster than the core retail channel. The company opened a net 37 experience locations across its corporate, partner-operated and franchise models.
- Operating cash flow improved amid lower cash spent on inventory purchases and increased sales volume. Share repurchases were lower than in FY2022, while FY2023 included the $22.0 million special dividend.
Outlook, risks and unusual items
- Management expects at least 50 net new locations in FY2024 across North America and international markets. It did not provide quantified FY2024 revenue or earnings guidance in the supplied filing text.
- Management described its growth priorities as expanding experience locations, advancing digital capabilities, and investing for profitable growth while returning capital to shareholders. A new quarterly dividend of $0.20 per share was declared in March 2024 and paid in April, after year-end.
- Inflation continued to pressure store labor costs in FY2023. Management expected pressures to ease but continue into FY2024; further selective price increases may be considered, with potential demand effects.
- Key risks include discretionary-spending sensitivity, store traffic and mall exposure, competition, execution of digital and store expansion plans, reliance on licensed brands, foreign exchange and trade risks, and concentration in suppliers. Five vendors accounted for 73% of merchandise purchases; China and Vietnam supplied 63% and 29% of merchandise received, respectively.
- Unusual items and estimates: The company recorded a $5.1 million benefit from reversing the U.K. deferred-tax valuation allowance. Gift-card breakage revenue was $6.3 million, up from $5.1 million; management said a hypothetical 1% change in the breakage rate would change revenue by $1.0 million. The film Glisten and the Merry Mission had a $0.6 million impairment and $1.0 million amortization during FY2023.
- Contingency: A U.K. customs dispute remains unresolved. At year-end, the related gross receivable was $4.6 million, with a $3.7 million reserve and $0.9 million net receivable; management did not expect a material adverse impact.
Investor verification priorities
- Assess reported growth after accounting for the extra fiscal week, store openings and closures, gift-card breakage, and weaker e-commerce and existing-store sales.
- Review the assumptions underlying gift-card breakage revenue and the liability, a significant estimate and the filing’s critical audit matter.
- Track whether planned FY2024 net unit growth of at least 50 locations delivers profitable returns across corporate, partner-operated and franchise formats.
- Monitor labor, freight and product-cost trends, supplier concentration, and the company’s ability to maintain margins without weakening demand through price increases.
- Verify progress on shareholder returns and liquidity, including the quarterly dividend, remaining repurchase authorization, credit-facility availability, and lease commitments.