Build-A-Bear Workshop, Inc. — Q3 2021 Form 10-Q
Reporting period: Thirteen weeks ended October 30, 2021; year-to-date (YTD) covers 39 weeks. Dollar figures below are in millions unless stated otherwise. The company operates corporately managed retail and e-commerce, commercial licensing/wholesale, and international franchising businesses. Results are seasonal, with sales historically highest in the fourth quarter.
Key financial results
| Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 |
|---|---|---|---|---|
| Revenue | $95.1 | $74.7 | $281.6 | $161.7 |
| Gross profit | $49.6 | $34.8 | $148.4 | $50.4 |
| Gross margin | 52.1% | 46.6% | 52.7% | 31.2% |
| SG&A | $41.7 | $33.1 | $117.9 | $81.3 |
| Income before tax | $7.9 | $1.7 | $30.6 | Loss of $31.0 |
| Net income (loss) | $5.9 | $1.7 | $23.1 | Loss of $33.5 |
| Diluted EPS | $0.36 | $0.11 | $1.44 | Loss of $2.24 |
- Q3 revenue increased 27.4% year over year; retail sales rose 26.5%. YTD revenue rose 74.2%, with retail sales up 72.9%. Comparisons were significantly affected by prior-year COVID-related closures and reduced operating hours.
- Q3 retail gross margin improved 550 basis points to 52.0%; YTD it improved 1,770 basis points to 52.7%. Management cited higher sales, fixed-occupancy-cost leverage and improved merchandise margins. Prior-year YTD results included $7.0 million of store asset impairment.
- SG&A increased in dollars as stores operated more fully, labor and corporate salaries returned, and marketing and performance incentives rose. SG&A as a share of revenue declined to 43.8% in Q3 from 44.3%, and to 41.9% YTD from 50.3%.
Cash, liquidity and obligations
- Cash and cash equivalents were $48.5 million at October 30, 2021, versus $25.8 million at October 31, 2020. Total current assets were $134.4 million and current liabilities were $93.9 million.
- YTD operating cash flow was $17.2 million, compared with $3.1 million in the prior-year period. Investing cash outflow was $4.6 million; financing cash inflow was $0.9 million. Inventory increased by $15.0 million during the period, which the company attributed in part to holiday-season purchasing.
- The company had no borrowings on its revolving credit facility. Approximately $16.0 million was available to borrow at period end, subject to the borrowing base; the facility has a $25.0 million maximum commitment.
- Operating lease liabilities totaled $109.5 million, including $26.8 million current and $82.7 million long term. These are lease obligations, not reported borrowings.
- Capital expenditures were $4.6 million YTD; management expected fiscal 2021 capital expenditures of approximately $8–$10 million.
Outlook, commentary and notable items
- Management expected fiscal 2021 revenue and profit to exceed fiscal 2020 and fiscal 2019. It cited digital initiatives, e-commerce fulfillment, omnichannel services and selective expansion into tourist locations as strategic priorities; the filing does not provide quantified revenue or earnings guidance.
- Management said inflationary pressures were expected to affect the remainder of fiscal 2021 but could not estimate the impact.
- COVID-related store closures and operating restrictions remained possible. Risks also include supply-chain disruption and cost increases, discretionary consumer demand, store traffic, retail labor and mall dependence, and changes in consumer preferences. The company noted reliance on a limited number of global suppliers.
- After quarter end, on November 30, 2021, the board authorized a share repurchase program of up to $25 million through November 30, 2023, funded primarily from cash on hand, and a special cash dividend of $1.25 per share, payable December 27, 2021 to shareholders of record December 10, 2021.
- A long-running U.K. customs-duty dispute remained under appeal. The company reported a $4.9 million gross receivable, a $3.7 million reserve and a $1.2 million net receivable; an appeal was expected in fiscal 2022. Management did not expect a material adverse impact.
- The company recorded $1.4 million of payroll reimbursements YTD and $0.9 million of U.K. business/restart grants. It also released the film Honey Girls; related Q3 revenue and amortization were immaterial, and approximately $4.0 million of related receivables were recorded as a reduction of previously capitalized film costs.
Important facts for investors to verify
- Assess how much of the reported growth reflects reopened stores and easier COVID comparisons versus sustained comparable-store and e-commerce demand.
- Monitor holiday inventory levels, supplier availability and cost inflation, and whether margins remain resilient as operating costs rise.
- Review cash needs and liquidity after the declared dividend and any repurchases, alongside the company’s lease commitments.
- Track the U.K. customs appeal and collectability of the net receivable, as well as the timing and economics of entertainment projects.
- Consider seasonal volatility, the absence of quantified earnings guidance, and the company’s stated COVID, consumer-demand and store-traffic risks.