Build-A-Bear Workshop, Inc. — Q1 2022 Form 10-Q
Reporting period: The 13 weeks ended April 30, 2022; comparisons are with the 13 weeks ended May 1, 2021. Amounts below are in U.S. dollars. The company operates direct-to-consumer (DTC), commercial, and international franchising businesses. Results are seasonal, and the company cautions that a single quarter is not indicative of full-year performance.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $117.7 million | $91.7 million | +28.3% |
| Net retail sales | $112.9 million | $89.2 million | +26.5% |
| Consolidated gross profit | $61.8 million | $48.4 million | +27.7% |
| Gross margin | 52.5% | 52.8% | -0.3 percentage points |
| SG&A expense | $43.6 million | $35.2 million | +23.8% |
| Income before taxes | $18.2 million | $13.2 million | +38.0% |
| Net income | $14.2 million | $10.4 million | +36.7% |
| Diluted earnings per share | $0.89 | $0.66 | +$0.23 |
| Net cash from operating activities | $4.5 million | $12.1 million | Down $7.6 million |
Liquidity, cash flow and capital
- At April 30, 2022, cash and cash equivalents were $26.1 million, versus $32.8 million at January 29, 2022. Current assets were $127.7 million and current liabilities were $89.5 million.
- The company had no outstanding borrowings under its revolving credit facility. Approximately $24.3 million was available to borrow, after a $0.75 million letter of credit, subject to the borrowing base.
- Operating cash flow was $4.5 million. Management attributed the year-over-year decline mainly to earlier and increased inventory purchases and higher operating-lease cash payments. Inventory rose to $77.4 million from $71.8 million at fiscal year-end.
- Investing activities used $1.1 million, primarily for capital expenditures. Financing activities used $10.6 million, including $8.1 million of share repurchases and $0.3 million of dividend payments.
- Operating lease liabilities totaled $90.1 million, including $23.5 million current and $66.6 million long-term. The company reported $91.3 million in purchase obligations, of which $23.9 million were due within 12 months.
Material changes versus the prior-year quarter
- Revenue growth reflected stronger demand, strategic price increases, lower promotional activity, higher commercial sales, and European stores being open for the full quarter. Management said approximately one-third of the total revenue increase related to Europe’s reopening; prior-year results were affected by pandemic-related closures and reduced operating hours.
- DTC generated 96% of revenue. DTC revenue rose to $112.9 million from $89.2 million; commercial revenue increased to $4.3 million from $2.1 million; international franchising revenue was $0.5 million versus $0.4 million.
- Gross margin eased to 52.5% from 52.8%, as freight inflation partly offset better leverage of fixed occupancy and distribution costs. SG&A increased in dollars, driven in part by higher store labor costs as operating hours and capacity increased; the prior-year quarter also benefited from approximately $1.0 million in government subsidies.
- Net income and EPS improved, while operating cash flow fell. The company ended the quarter with 345 corporately managed stores and 64 franchised stores; nine franchise stores closed during the quarter.
Outlook, risks and contingencies
- Management expected fiscal 2022 total revenue and profit to grow compared with fiscal 2021. It planned capital expenditures of approximately $10 million to $15 million and saw potential to add up to 20 locations during fiscal 2022 through corporate and third-party retail formats. These are expectations, not guarantees.
- Management expected inflationary pressures to continue, particularly freight and other supply-chain costs. It cited strategic price increases and accelerated inventory purchases as mitigating actions, while warning that costs, product availability, consumer spending, and margins could be adversely affected.
- Principal risks include pandemic and economic uncertainty, inflation and discretionary spending, mall traffic, supply-chain/vendor concentration, international sourcing and currency exposure, digital and technology risks, lease and store-portfolio execution, and consumer preferences. The company said there were no material changes to the risk factors in its latest 10-K.
- A UK customs-duty dispute remained under appeal. The company reported a $4.3 million gross receivable, a $3.3 million reserve, and a $1.0 million net receivable; it did not expect a material adverse effect. A putative TCPA class action concerning marketing texts was in early discovery; no loss estimate was available and no accrual was recorded.
- The company had authorized a $25 million share-repurchase program. It repurchased $8.1 million of shares in the quarter; $10.9 million remained available under authorization as reported after subsequent activity through May 25, 2022.
- Management reported effective disclosure controls as of April 30, 2022 and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether sales momentum and profitability persist after accounting for the prior-year store-reopening comparison and seasonal patterns.
- Whether inventory growth, purchase obligations, and advance ordering translate into sales without increased markdowns or margin pressure.
- How sustained freight and other inflation affect gross margins, pricing, and consumer demand.
- Progress against the fiscal 2022 growth, store-expansion, and capital-spending expectations.
- Developments in the TCPA litigation and UK customs appeal, as well as gift-card breakage estimates, which the filing says could materially affect revenue recognition in future periods.
- Cash levels and borrowing availability as the company continues share repurchases and manages its lease and purchase commitments.