Build-A-Bear Workshop, Inc. — Q1 FY2021 Form 10-Q
Reporting period: Thirteen weeks ended May 1, 2021. Financial statements are unaudited. Comparisons are with the thirteen weeks ended May 2, 2020, when COVID-19 closures significantly affected results.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Total revenue | $91.7 million | $46.6 million |
| Gross profit / margin | $48.4 million / 52.8% | $8.1 million / 17.4% |
| Retail gross margin | 52.8% | 26.9% |
| SG&A | $35.2 million | $26.7 million |
| Operating income | Filing does not provide a separate value | Filing does not provide a separate value |
| Income (loss) before taxes | $13.2 million | $(18.7) million |
| Net income (loss) | $10.4 million | $(21.2) million |
| Diluted EPS | $0.66 | $(1.42) |
| Cash from operations | $12.1 million | $(2.5) million |
| Capital expenditures | $0.5 million | $2.8 million |
Revenue increased 96.7%. Net retail sales rose 95.4% to $89.2 million; commercial revenue was $2.1 million, up from $0.3 million, while international franchising revenue declined to $0.4 million from $0.6 million. Retail sales growth reflected more store operating days, stronger e-commerce, and pandemic-related closures in the prior-year period. Retail gross margin improved 2,590 basis points, attributed to higher sales, lower fixed occupancy costs following rent negotiations, and improved merchandise margin. SG&A rose mainly because of higher labor costs as stores reopened.
Balance sheet and liquidity
- Cash, cash equivalents and restricted cash were $45.9 million at May 1, 2021, versus $21.9 million a year earlier. Cash and cash equivalents on the balance sheet were $45.9 million; the cash flow note identifies $1.7 million as restricted cash.
- Current assets were $107.8 million and current liabilities $87.4 million. Total assets were $264.4 million; stockholders’ equity was $78.0 million.
- No revolving-credit borrowings were outstanding. The $25 million facility had approximately $15.8 million available after a $1.0 million letter of credit, subject to the borrowing base.
- Operating lease liabilities totaled $126.3 million, including $30.6 million current and $95.7 million long-term. These are lease obligations, not reported borrowings.
- Operating cash flow increased to $12.1 million, primarily reflecting higher net income and store operating days. Cash increased by $11.1 million during the quarter.
Business developments, outlook and risks
- At quarter-end, almost all stores were operating; most Canadian stores remained temporarily closed. The company had 355 corporately managed stores and 72 franchised stores.
- Management said it expected to deliver growth in 2021 and emphasized digital transformation, e-commerce and omnichannel capabilities, and maintaining a strong balance sheet. This is directional commentary, not quantified earnings or revenue guidance.
- E-commerce demand had another quarter of double-digit growth year over year, following a double-digit increase in the prior-year quarter; North America recorded triple-digit growth. About one in five digital orders was fulfilled from a traditional store.
- Expected FY2021 capital expenditures were $5 million to $10 million. The filing notes seasonal sales patterns, with historical sales generally highest in the fourth quarter.
- COVID-19 restrictions, store traffic and reopening patterns remained uncertain. Other stated risks included discretionary consumer spending, reliance on a limited number of global suppliers, mall and tourist-location traffic, international operations, licensed-product timing, technology and cybersecurity, and foreign currency and trade risks.
Unusual items and contingencies
- COVID-related government support reduced SG&A expenses by $1.0 million; U.K. business and restart grants contributed another $0.9 million recorded within SG&A. The comparable prior-year payroll expense reduction was $1.5 million.
- A U.K. customs-duty dispute remains under appeal. The company reported a gross receivable of $4.6 million, a $3.6 million reserve and a $1.0 million net receivable; management said it did not expect a material adverse impact.
- The company reported no material changes to risk factors or market-risk disclosures, and no material changes in internal control over financial reporting. Disclosure controls were assessed as effective.
Key facts for investors to verify
- How much of the large year-over-year revenue and profit improvement reflects reopening and comparison against pandemic closures, versus underlying demand growth.
- Whether the stated expectation of FY2021 growth is sustained as stores reopen, particularly in Canada and Europe, and whether e-commerce growth continues.
- Cash generation and liquidity after approximately $3.6 million of deferred rent payments due during the remainder of FY2021, alongside the company’s lease commitments.
- Progress toward the $5 million–$10 million capital expenditure plan and the effect of government grants and other temporary support on reported expenses.
- Developments in the U.K. customs appeal and the recoverability of the remaining $1.0 million net receivable.