Business context and reporting period
Build-A-Bear Workshop, Inc. filed this Form 10-K for fiscal 2021, the 52 weeks ended January 29, 2022, with fiscal 2020 (ended January 30, 2021) as the comparison. The filing provides full-year results; it does not provide a clear standalone fourth-quarter income statement or cash-flow comparison.
The company operates direct-to-consumer stores and e-commerce, commercial wholesale and licensing activities, and international franchising. At year-end it had 346 company-managed stores, 61 third-party retail locations, and 72 international franchised stores.
Financial results and key metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $411.5 million | $255.3 million |
| Net retail sales | $397.7 million | $249.2 million |
| Commercial revenue | $11.5 million | $4.4 million |
| International franchising revenue | $2.3 million | $1.7 million |
| Consolidated gross profit / gross margin | $218.0 million / 53.0% | $97.4 million / 38.2% |
| Retail gross margin | 53.1% | 40.7% |
| SG&A | $167.3 million | $117.6 million |
| Income (loss) before taxes | $50.7 million | $(20.2) million |
| Net income (loss) | $47.3 million | $(23.0) million |
| Diluted EPS | $2.93 | $(1.54) |
| Cash from operating activities | $28.1 million | $13.4 million |
- Revenue increased 61.2%. Net retail sales rose 59.6%, mainly reflecting more store operating days as COVID-related closures eased, alongside e-commerce growth. Commercial revenue increased 159.9%, and franchising revenue increased 39.0%.
- Retail gross margin expanded 1,240 basis points, benefiting from higher sales and fixed-occupancy cost leverage, less promotional activity, and price increases; higher freight costs partly offset gains.
- SG&A rose with store reopenings, full corporate salaries, higher incentive compensation, and increased advertising. Advertising expense was $16.4 million, versus $8.1 million.
- Net cash used in investing was $8.1 million, primarily capital expenditures. Net cash used in financing was $22.5 million, including a $19.9 million special dividend and $4.4 million of share repurchases.
- Year-end cash, cash equivalents, and restricted cash totaled $32.8 million, including $1.0 million of restricted cash. The company had no revolver borrowings; approximately $22.5 million was available, subject to the borrowing base and agreement terms.
- Inventory was $71.8 million, up $24.9 million year over year, largely due to accelerated purchases intended to mitigate supply-chain disruption, inflation, and expected freight and product cost increases.
- Current assets were $130.0 million and current liabilities were $97.4 million. Operating lease liabilities totaled $98.6 million, of which $25.2 million was current; the filing reports no outstanding funded debt under the credit facility.
Material changes, outlook, risks and unusual items
- The improvement from the prior-year loss coincided with the reopening of stores that had been closed or operating with reduced hours during the pandemic. Management also cited possible contributions from pent-up demand and government stimulus, so the comparison is not solely attributable to underlying strategic changes.
- Management reported the highest pretax profit in company history and attributed performance to its omnichannel strategy, digital initiatives, diversified revenue streams, and expense and balance-sheet discipline. It described these initiatives as the basis for continued profitable growth, but provided no quantified FY2022 revenue or earnings guidance.
- Management sees potential to add up to 20 locations over the next two to three years, emphasizing tourist destinations and corporate-managed and third-party retail formats. It also planned to resume in-store parties in March 2022 and use the brand’s 25th anniversary to drive engagement and purchases.
- Management expects inflationary pressures experienced late in FY2021 to continue into FY2022, particularly in freight and other supply-chain costs. It cited strategic price increases and accelerated inventory purchases as mitigation, while warning that higher costs, further price changes, and reduced discretionary spending could pressure demand, margins, liquidity, and cash flows.
- COVID-related effects remain uncertain, including possible resurgences, customer traffic changes, operating restrictions, and supply-chain disruption. Other key exposures include dependence on a small group of vendors, with four vendors representing 74% of FY2021 merchandise purchases; mall and tourist-location traffic; licensing relationships; foreign exchange; and cybersecurity and privacy risks.
- Legal matters include a disputed U.K. customs receivable: gross $4.5 million, reserved $3.5 million, net $1.0 million; an appeal was scheduled for May 2022. A putative TCPA class action was in early discovery; the company could not reasonably estimate potential loss and recorded no accrual.
- Gift-card breakage revenue was $6.5 million, versus $3.7 million, and depends on estimated redemption patterns. Auditors identified gift-card breakage recognition as a critical audit matter; management estimated a 1% change in the breakage rate would change FY2021 breakage revenue by $1.3 million.
- The effective tax rate was 6.8%, principally reflecting a $7.8 million reversal of the North American deferred-tax valuation allowance. The U.K. continued to maintain a full valuation allowance against deferred tax assets.
- The filing notes immaterial revisions to balance-sheet amounts previously included in the March 2022 earnings release; the revisions did not affect the statements of operations or comprehensive income. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Review subsequent-period results to assess whether FY2021’s sharp recovery persisted after pandemic reopening effects and any temporary stimulus or pent-up demand.
- Track inventory conversion, freight and product costs, promotional activity, and the extent to which price increases protect gross margins without weakening demand.
- Check cash generation and working-capital needs against the $25.7 million of purchase obligations due within 12 months, store investment plans, and shareholder returns.
- Monitor store productivity, e-commerce contribution, and execution of the planned location growth and omnichannel strategy.
- Follow the U.K. customs appeal, the TCPA litigation, and changes in gift-card redemption and breakage estimates.
- Note that the filing’s balance-sheet revision is described as immaterial and does not change reported earnings; confirm any later restatements or updates in subsequent filings.