UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
☒
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 29, 2022
OR
☐
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number: 001-32320
BUILD-A-BEAR WORKSHOP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
43-1883836
(I.R.S. Employer Identification No.)
415 South 18th St.
St. Louis, Missouri
(Address of Principal Executive Offices)
63103
(Zip Code)
(314) 423-8000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01 per share
Trading Symbol
BBW
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected to not use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
There is no non-voting common equity. The aggregate market value of the common stock held by non-affiliates (based upon the closing price of $15.20 for the
shares on the New York Stock Exchange on July 30, 2021) was $243.7 million as of July 30, 2021, the last business day of the registrant’s most recently completed
second fiscal quarter.
As of April 11, 2022, there were 15,679,875 issued and outstanding shares of the registrant’s common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its June 9, 2022 Annual Meeting of Stockholders are incorporated herein by reference.
BUILD-A-BEAR WORKSHOP, INC.
INDEX TO FORM 10-K
Page
Forward-Looking Statements ............................................................................................................................ 1
Part I
Item 1. Business ............................................................................................................................................. 2
Item 1A. Risk Factors ........................................................................................................................................ 6
Item 1B. Unresolved Staff Comments ............................................................................................................... 18
Item 2. Properties ........................................................................................................................................... 18
Item 3. Legal Proceedings .............................................................................................................................. 19
Item 4. Mine Safety Disclosure ....................................................................................................................... 19
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities .............................................................................................................................. 20
Item 6. Selected Financial Data ...................................................................................................................... 20
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ............. 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................................................. 32
Item 8. Financial Statements and Supplementary Data ................................................................................. 33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............ 33
Item 9A. Controls and Procedures .................................................................................................................... 34
Item 9B. Other Information ................................................................................................................................ 36
Part III
Item 10. Directors, Executive Officers and Corporate Governance ................................................................. 36
Item 11. Executive Compensation .................................................................................................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ............................................................................................................................................. 37
Item 13. Certain Relationships and Related Transactions and Director Independence................................... 38
Item 14. Principal Accountant Fees and Services ............................................................................................ 38
Item 15. Exhibits and Financial Statement Schedules ..................................................................................... 39
Part IV
Exhibit Index ...................................................................................................................................................... 66
Signatures ......................................................................................................................................................... 69
i
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain statements that are, or may be considered to be, “forward-
looking statements” for the purpose of federal securities laws, including, but not limited to, statements that reflect
our current views with respect to future events and financial performance. We generally identify these statements
by words or phrases such as “may,” “might,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,”
“predict,” “future,” “potential,” “will,” “could,” “target,” “project,” “contemplate,” or “continue,” the negative or any
derivative of these terms and other comparable terminology. These forward-looking statements, which are subject
to risks, uncertainties and assumptions about us, may include, among other things, projections or statements
regarding:
•
our future financial performance, especially in light of the continuing effects of the global pandemic on our
store operations and current geopolitical events;
•
the sufficiency of our cash generated from operations and borrowings under our credit facilities;
•
our anticipated operating strategies and future strategic expansion initiatives;
•
our future capital expenditures;
•
our anticipated rate of store relocations, openings and closures; and
•
our anticipated costs related to store relocations, openings and closures.
These statements are only predictions based on our current expectations and projections about future
events. Because these forward-looking statements involve risks and uncertainties, there are important factors that
could cause our actual results, level of activity, performance or achievements to differ materially from the results,
level of activity, performance or achievements expressed or implied by these forward-looking statements,
including those factors discussed under the caption entitled “Risk Factors” as well as other places in this Annual
Report on Form 10-K.
We operate in a competitive and rapidly changing environment. New risk factors emerge from time to time
and it is not possible for management to predict all the risk factors, nor can it assess the impact of all the risk
factors on our business or the extent to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you
should not place undue reliance on forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K, as a prediction of actual results.
You should read this Annual Report on Form 10-K completely and with the understanding that our
actual results may be materially different from what we expect. Except as required by law, we undertake
no duty to update these forward-looking statements, even though our situation may change in the future.
We qualify all of our forward-looking statements by these cautionary statements.
Unless the context otherwise requires, references in this Annual Report on Form 10-K to the “Company,”
“we,” “us,” and “our” refer to Build-A-Bear Workshop, Inc. and, where appropriate, its subsidiaries.
The following discussion contains references to fiscal 2021 and fiscal 2020, which represent our fiscal years
ending January 29, 2022 and January 30, 2021, respectively.
The following Annual Report reflects immaterial revisions to certain consolidated balance sheet items
presented in the Company's Press Release filed on March 10, 2022 announcing its results for the Company's
2021 fourth fiscal quarter and full 2021 fiscal year ended January 29, 2022. Specifically, the inventories,
receivables and accounts payable balances were decreased by $1.8 million, $1.6 million and $3.4 million,
respectively, and the prepaid expenses and other current assets, and operating lease liability short term balances
were both increased by $0.8 million. These revisions did not affect the consolidated statements of operations and
comprehensive income (loss).
1
ITEM 1. BUSINESS
Overview
PART I
Build-A-Bear Workshop, Inc., a Delaware corporation, was formed in 1997 as a mall-based, experiential
specialty retailer where children and their families could create their own stuffed animals. Over the last nearly 25
years, Build-A-Bear has become a brand with high consumer awareness and positive affinity with over 200 million
furry friends having been made by our guests around the world. The Company has leveraged, and expects to
continue to leverage, its brand strength to strategically evolve its brick-and-mortar retail footprint beyond traditional
malls with a versatile range of formats and locations including tourist destinations; to extend into international
markets primarily via a franchise model; and to broaden its consumer base beyond children by adding teens and
adults with entertainment/sports licensing, collectible and gifting offerings. The Company has also significantly
advanced its digital transformation which is enabling meaningful growth in its e-commerce and omnichannel
business primarily via opportunities related to Build-A-Bear’s pop-culture and multi-generational appeal; the
advancement of an elevated consumer loyalty program with the goal of capturing first party data, expanding multi-
channel shopping and driving lifetime value; the development of robust digital marketing programs and content
capabilities with industry-leading partners.
As of January 29, 2022, we operated 346 corporately-managed locations, including 305 stores in the United
States (“U.S.”) and Canada, 41 stores in the United Kingdom (“U.K.”) and Ireland, 61 locations operated through
our "third-party retail" model in which we sell our products on a wholesale basis to other companies that then in
turn execute our retail experience, and had 72 franchised stores operating internationally, all under the Build-A-
Bear Workshop brand. In addition to our stores, we sold product on our company-owned e-commerce sites, third-
party marketplaces and franchisee sites and through retailer’s wholesale agreements.
Select corporately-managed, franchised, and third-party retail locations were temporarily closed due to
pandemic-related government mandates as well as our internal COVID management policies at various times
throughout fiscal 2021, primarily in the U.K. and Canada.
COVID Pandemic Update
At the beginning of fiscal 2021, our U.S. store portfolio was open and operating while our stores in the U.K,
Ireland and Canada remained temporarily closed. In April 2021, stores in the U.K. reopened as the government
lifted lockdown restrictions resulting in essentially all of our stores operating at the end of the 2021 first fiscal
quarter with the remaining stores in the U.K. and Ireland opening in the second fiscal quarter thereby ending that
period with all stores open in those geographies. The majority of our Canadian stores remained temporarily closed
at the beginning of the second quarter with the majority reopening in June 2021 and with all stores ending that
period open. Our year-over-year results discussed below were impacted by prior year store closures and operating
hour reductions as a result of the pandemic. Throughout the fiscal year, temporary, unplanned store closures
occurred due to COVID exposures on a limited basis, with one store temporarily closed as of the end of the 2021
fiscal year.
The scope and nature of these impacts on our business and financial performance are discussed in more
detail throughout this report, including within Item 1. "Business", Item 1A. "Risk Factors, Item 7. "Management’s
Discussion and Analysis of Financial Condition and Results of Operations", and the footnotes to our financial
statements included in Item 15. "Exhibits and Financial Statement Schedules" below.
Segments and Geographic Areas
Our business is conducted through three reportable segments consisting of direct-to-consumer (“DTC”),
commercial, and international franchising. Our reportable segments are primarily determined by the types of
customers they serve and the types of products and services that they offer. Each reportable segment may operate
in many geographic areas. Financial information related to our segments and the geographic areas in which we
operate is contained in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.” See Note 15 — Segment Information to the consolidated financial statements for information
regarding sales, results of operations and identifiable assets of the Company by business segment and by
geographic area.
2
Description of Operations
Build-A-Bear Workshop offers interactive entertainment experiences via both physical and e-commerce
engagement, targeting a range of consumer segments and purchasing occasions through digitally-driven,
diversified omnichannel capabilities. We operate a vertical retail channel with stores that feature a unique
combination of experience and product in which guests can “make their own stuffed animals” by participating in
the stuffing, fluffing, dressing, accessorizing and naming of their own teddy bears and other stuffed animals. We
also operate e-commerce sites that focus on gift-giving, collectible merchandise and licensed products that appeal
to consumers that have an affinity for characters from a range of entertainment, sports, art, and gaming properties.
Our engaging digital purchasing experiences include our online “Bear-Builder”, the animated “Bear Builder 3D
Workshop”, an age-gated adult-focused “Bear Cave” and the recently introduced “HeartBox” gift site. Our retail
stores also act as “mini distribution centers” that provide efficient omnichannel support for our growing digital
demand. The primary consumer target for our retail stores is families with children while our e-commerce sites
focus on collectors and gift givers that are primarily tweens, teens and adults. We have also extended our business
model by leveraging our brand strength and owned intellectual properties through the creation of engaging content
for kids and adults while also offering products at wholesale and in non-plush consumer categories via outbound
licensing agreements with leading manufacturers.
We seek to provide outstanding guest service and experiences across all channels and touch points
including our stores, our e-commerce sites, our mobile sites and apps as well as traditional, digital and social
media. We believe the hands-on and interactive nature of our stores, our personal service model and engaging
digital shopping experiences result in guests forming an emotional connection with our brand which has multi-
generational appeal that captures today’s zeitgeist including desire for experience, personalization and “DIY” while
being recognized as trusted, giving, and a part of pop culture.
We believe there are opportunities to extend the reach and size of our diverse consumer segments through
expanded products and licensed relationships, evolved experiences, and incremental occasions, partnerships,
and marketing activities. We believe we can further develop our business by creating a continuous circle of
engagement with expanded programs including outbound branded licensing and entertainment that drives retail
performance and leverages our brand equity which may in turn positively impact other channels of distribution.
Operating Strategies
To support our overall strategy, we have evolved many aspects of our company in recent years ranging
from an organizational re-structure to supply chain diversification to rebuilding our IT infrastructure. We believe
the activities and investments that were initiated prior to the pandemic, and in many cases accelerated during the
pandemic, particularly as it relates to our primary objective to comprehensively digitally transform the company,
are the primary drivers of the positive performance that we delivered in fiscal 2021 including growth in total
revenues and the highest profitability in our company’s history. We remain focused on the disciplined execution
of our multi-year strategy to elevate and monetize our iconic brand, take advantage of the growing digital economy
as well as advanced marketing capabilities and believe we are a fundamentally different company compared to
the pre-COVID timeframe.
Our strategic priorities are centered primarily on three key areas:
• Further acceleration of our digital transformation including content and entertainment initiatives. We have
plans in place designed to increase repeat purchase rates and enhance engagement with the over 12 million
opted-in first party data contacts including over 10 million active Build-A-Bear Bonus Club members. We
expect to more effectively use our expanded digital capabilities and platforms to inform and drive marketing
and content campaigns and deliver personalized experiences and sales messaging. We also plan to expand
our addressable market by reaching beyond the core kid base and acquire new tween, teen, and adult
consumers by offering unique affinity offerings and expanding purchase occasions. In addition, we plan to
continue to utilize digital media, content and entertainment as marketing and brand-building tools to engage
consumers and create value.
3
• Continuing to leverage our expanded omnichannel capabilities while further evolving retail experiences and
purchase occasions. With the vast majority of our U.S. stores profitable in fiscal 2021, we believe there is an
opportunity to add up to 20 locations in the next two to three years through a combination of our corporately-
managed and third-party retail models with an emphasis on tourist sites. We also plan to leverage our
enhanced omnichannel options including Buy Online Ship From Store, Buy Online Pickup In Store and same
day delivery through our relationship with Shipt to efficiently support fulfillment of our growing digital demand.
This strategic use of hundreds of store locations as “mini distribution centers” significantly improves e-
commerce fulfillment efficiency and throughput, decreases ship time (which is especially critical to
minimize holiday cut-off days) and leverages available labor in our retail stores. We also re-introduced our
in-store party offering after a nearly two-year hiatus due to COVID in March of 2022. In addition, 2022 marks
the 25th anniversary since Build-A-Bear Workshop was founded and we plan to capitalize on the occasion to
create interest, leverage nostalgia and drive incremental purchases.
• Optimizing our solid financial position including a strong balance sheet to support our business and
make strategic investments designed to drive further growth. We plan to maintain disciplined expense
management particularly in light of recent inflationary pressures, wage increases and supply chain
challenges. We are also focused on ongoing lease negotiations as we continue to evolve our real estate
portfolio with new locations, formats and business models. In addition, we expect to continue to strategically
manage our capital to support key initiatives and innovative developments designed to deliver long-term
profitable growth while returning value to sharrholders.
Merchandise Sourcing and Inventory Management
Our stores and e-commerce sites offer an extensive and coordinated selection of merchandise, including a
wide range of different styles of plush products to be stuffed, pre-stuffed plush products, sounds and scents that
can be added to the stuffed animals and a broad variety of clothing, shoes and accessories, as well as other brand
appropriate toy and novelty items, sourced from multiple vendors primarily in China and Vietnam. Our plush
products and clothing are produced from high quality, man-made materials or natural fibers, and the stuffing is
made of a high-grade polyester fiber.
We believe we comply with governmental toy safety requirements specific to each country where there are
Build-A-Bear Workshop stores. Specifically, we believe all of the products sold in our stores and through our e-
commerce sites meet Consumer Product Safety Commission (CPSC) requirements including the Consumer
Product Safety Improvement Act (CPSIA) for children’s products. We also believe we comply with American
Society for Testing and Materials (ASTM-F963), European Toy Safety Standards (EN71), China National Toy
Standards (GB6675/GB5296.5), China Compulsory Certification (CCC), Australian/New Zealand Standard
(AS/NZS 8124), Canadian Consumer Product Safety Act Toys Regulation (CCPSA), Chile Standard on Safety of
Toys NCh 3251 and India Safety of Toys (IS:9873). Our products are tested through independent third-party
testing labs for compliance with toy safety standards. Packaging and labels for each product indicate the age
grading for the product and any special warnings in accordance with guidelines established by the CPSC or other
applicable authority. We require our supplier factories to be compliant with the International Council of Toy
Industries (ICTI) Ethical Toy Program certification or with other third-party social compliance programs. The ICTI
Ethical Toy Program process is a social compliance program to promote ethical manufacturing in the form of fair
labor treatment, as well as employee health and safety in the toy industry supply chain worldwide. In order to
obtain this certification, each factory completes a rigorous evaluation performed by an accredited ICTI agent on
an annual basis.
The average time from product conception to the arrival in stores is approximately 12 months, including
approximately 90 to 120 days from the beginning of production to in-store delivery. Through an ongoing analysis
of selling trends, we regularly update our product assortment by increasing quantities of productive styles and
eliminating less productive styles. Our relationships with our vendors generally are on a purchase order basis
without contractual obligation to provide adequate supply or acceptable pricing on a long-term basis.
As of January 29, 2022, our inventory balance was $71.8 million, an increase of $24.9 million compared to
January 30, 2021. The majority of the increase was related to in-transit inventory due to strategically planned
accelerated purchases used to partially mitigate inflationary and supply chain COVID-related pressure and
anticipated continued increases in product and freight costs. While we are comfortable with the receipt flow, level,
and composition of our inventory, we continue to manage our supply chain in an effort to mitigate logistics
disruptions and delays in product shipments.
4
Distribution and Logistics
We own a 350,000 square-foot distribution center in Groveport, Ohio (near Columbus) that serves the
majority of our stores in the U.S. and Canada. We also contract with a third-party warehouse in southern California
to service our West Coast stores. The contract has a one-year term and is renewable. In Europe, we contract with
a third-party distribution center in Selby, England under an agreement that ends in January 2025, to fulfill our store
and e-commerce fulfillment needs. This agreement contains clauses that allow for termination if certain
performance criteria are not met. In Asia, we contract with a third-party distribution center and office space in
Shanghai, China, both of whose agreements end in April 2023.
Transportation from the warehouses to stores is managed by several third-party logistics providers. In the
U.S., Canada and Europe, merchandise is shipped by a variety of distribution methods, depending on the store
and seasonal inventory demand. Shipments from our distribution centers are scheduled throughout the week in
order to smooth workflow, and stores are grouped together by shipping route to reduce freight costs. All items in
our assortment are eligible for distribution, depending on allocation and fulfillment requirements, and we typically
distribute merchandise and supplies to each store once every other week or once a week on a regular schedule,
which allows us to consolidate shipments in order to reduce distribution and shipping costs. Back-up supplies,
such as stuffing for the plush animals, are often stored in limited amounts at regional pool points.
During fiscal 2020, we introduced "Buy Online, Ship From Store" and "Buy Online, Pick Up In Store" for
orders placed in the U.S. and "Click and Collect" for orders placed in the U.K. These programs allow our brick and
mortar stores to operate essentially as mini distribution centers allowing us to leverage the geographic proximity
of stores, available inventory and labor to fulfill e-commerce demand.
Employees
As of January 29, 2022, we had approximately 1,000 full-time and 2,700 regular part-time employees in the
U.S., Canada, the U.K., Ireland and China. The number of part-time employees at all locations fluctuates
depending on our seasonal needs. None of our employees is represented by a labor union, and we believe our
relationship with our employees is good.
Competition
As our company has diversified and evolved, we view our competition through a number of categories. For
our retail stores, we view the Build-A-Bear Workshop store experience as a distinctive combination of
entertainment and retail with limited direct competition. We are aware of several small companies that operate
“make your own” teddy bear and stuffed animal stores or kiosks in retail locations, but we believe none of those
companies offer the breadth of assortment nor depth of experience or operate as a national or international retail
company.
Since our signature products, teddy bears and other stuffed animals, are included in the toy category, we
compete indirectly with a number of companies that sell plush products or premium children’s toys, including, but
not limited to, Ty, Mattel, Hasbro, Lego, Ganz, and Steiff. We also compete with toy retailers including online and
mass merchandisers such as Amazon, Walmart or Target as well as specialty stores such as The Entertainer Toy
Shop, Smyths Toys Superstores and Hamleys.
As our gift-giving and affinity business has grown, our competitors include diverse retail and online
companies such as Vermont Teddy Bear, Funko, or 1-800 Flowers. Since we sell a product that integrates
merchandise and experience, we also view our competition as any company that competes for family time and
entertainment dollars, such as movie theaters, amusement parks and arcades, other mall-based entertainment
venues, party venues and online entertainment.
Intellectual Property and Trademarks
We believe our copyrights, service marks, trademarks, trade secrets, patents and similar intellectual
property are critical to our success, and we intend, directly or indirectly, to maintain and protect these marks and,
where applicable, license the intellectual property. Our patents do not expire until the years 2032 and 2033.
5
We have developed licensing and strategic relationships with leading retail and cultural organizations. We
plan to continue to collaborate with companies that have strong, family-oriented brands and provide us with
attractive marketing and merchandising opportunities. These relationships for specific products are generally
reflected in contractual arrangements for limited terms that are terminable by either party upon specified notice.
Specifically, we have key strategic relationships with select companies in which we feature their brands on
products sold in our stores, including Disney®, NBCUniversal, Lucasfilm, Warner Bros., Pokémon, ViacomCBS,
Nintendo, and major professional and collegiate sports along with other culturally relevant brands.
Availability of Information
We are subject to the reporting and information requirements of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). As a result, we file periodic reports and other information with the Securities and
Exchange Commission (the “SEC”). We make these filings available free of charge in the Investor Relations
section of our corporate website, the URL of which is http://ir.buildabear.com, as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC. You may also request copies of these
materials without charge by writing to our Investor Relations department at World Headquarters, 1954 Innerbelt
Business Center Drive, St. Louis, Missouri 63114. The SEC maintains a website, http://www.sec.gov, that
contains our annual, quarterly and current reports and other information we file electronically with the
SEC. Information on our website is not incorporated by reference into, and does not constitute a part of, this
Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
We operate in a changing environment that involves numerous known and unknown risks and uncertainties
that could materially affect our operations. The risks, uncertainties and other factors set forth below may cause
our actual results, performances or achievements to be materially different from those expressed or implied by
our forward-looking statements. If any of these risks or events occur, our business, financial condition or results
of operations may be adversely affected.
MACROECONOMIC AND INDUSTRY RISKS
The COVID pandemic has had and is expected to continue to have an adverse effect on our business and
results of operations.
The COVID pandemic has had, and is continuing to have, an impact on our business and results of
operations. At the peak of the COVID outbreak, many of our corporately-managed and franchised stores were
closed. For stores that remained open, overall same-store sales declined due to modified operating hours and
reduced customer traffic. While all of our corporately-managed and nearly all of our franchised stores have
reopened, we expect that our operations will continue to be impacted by the continuing effects of COVID, including
resurgences and variants of the virus. The Company continues to monitor the situation and take appropriate
actions in accordance with the recommendations and requirements of relevant authorities. The extent to which
the pandemic may impact our operational and financial performance remains uncertain and will depend on many
factors outside of our control, including the timing, extent, trajectory and duration of the pandemic, the emergence
of new variants, the development, availability, distribution and effectiveness of vaccines and treatments, the
imposition of protective public safety measures, and the impact of the pandemic on the global economy and
demand for our products. Additional future impacts may include, but are not limited to, material adverse effects
on demand for our products and interactive experience, supply chain operations disruptions, our ability to
execute strategic plans and to predict future performance, and our financial performance and profitability.
To the extent COVID adversely affects our business, operations, financial condition and operating results,
it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such
as those relating to retail customer traffic, general global economic conditions, and demand for our interactive
retail experience.
6
We depend upon the shopping malls and tourist locations in which our stores are located to attract
guests. Continued or further declines in retail customer traffic could adversely affect our financial
performance and profitability.
While we invest in integrated marketing efforts and believe we are more of a destination location than other
retailers, we rely to a great extent on retail customer traffic in the malls and tourist locations in which our stores
are located. Traffic to tourist locations in general has been reduced and may continue to be negatively impacted
by COVID, which might disproportionally affect our business relative to other retailers that have locations in more
traditional settings or that have a greater mix of online sales ordering. We rely on the ability of the malls’ anchor
tenants, generally large department stores, and on the continuing popularity of malls and tourist locations as
shopping destinations to attract high levels of consumer traffic. We cannot control the development of new
shopping malls nor the closure of existing malls, the addition or loss of anchors and co-tenants, the availability or
cost of appropriate locations within existing or new shopping malls or the desirability, safety or success of
shopping malls. The pandemic accelerated a trend that has been occurring for years of consumers shifting
behavior to increasingly purchase products from online merchants rather than traditional brick-and-mortar stores.
While we had significant growth in our e-commerce sales and continue with initiatives intended to develop and
strengthen our online business, the majority of our sales are generated from our physical store locations.
Consumer traffic may also be reduced due to factors such as the economy, civil unrest, actual or threatened acts
of terrorism to shopping locations, the impact of weather or natural disasters or a decline in consumer confidence
resulting from international conflicts or war. A decrease in consumer traffic could have an adverse effect on our
financial condition and profitability.
A decline in general global economic conditions could lead to disproportionately reduced discretionary
consumer spending and a corresponding reduction in demand for our products and have an adverse
effect on our liquidity and profitability.
Since purchases of our merchandise are dependent upon discretionary spending by our guests, our
financial performance is sensitive to changes in overall economic conditions that affect consumer spending.
Consumer spending habits are affected by, among other things, prevailing economic conditions, inflation, levels
of employment, salaries and wage rates, consumer confidence and consumer perception of economic conditions.
A slowdown in the North American or European economies or in the economies of the countries in which our
franchisees and third-party retail partners operate or uncertainty as to the economic outlook could reduce
discretionary spending or cause a shift in consumer discretionary spending to other products. For example, the
potential adverse effects across geographies of COVID or future pandemics, inflation, and geopolitical conflicts
could result in lower net retail sales and could also result in excess inventories, which could, in turn, lead to
increased merchandise markdowns and related costs associated with higher levels of inventory and adversely
affect our liquidity and profitability. In addition, economic uncertainty can affect the credit and capital markets and
our financial condition which may affect our ability to access capital resources under our credit agreement. The
amount available for borrowing could be restricted under our agreement if the amount of assets used to
calculate the borrowing base (specified percentages of eligible credit card receivables, eligible inventory, and,
under certain circumstances, eligible foreign in-transit inventory and, in the discretion of the agent, eligible
receivables) decrease.
Inflation impacted our business operations throughout fiscal 2021 and began to have an adverse impact on
our business in the fourth quarter of this year, mainly in freight and other supply chain related costs. Although we
took actions to mitigate these pressures, such as strategic price increases on highly sought-after products and
accelerated purchases of inventory, there can be no assurance that we will be able continue these actions or that
they will be successful in the future. We expect the inflationary pressures experienced at the end of fiscal 2021
to continue into fiscal 2022. We may need to adjust prices further to mitigate the impacts of changes to the rate
of inflation during 2022 or in future years.
Moreover, these inflationary pressures have caused, and are expected to continue to cause, significant
increases in the costs of other products which are required by consumers, such as gasoline, home heating and
cooling fuels, or groceries, which in turn is likely to reduce household spending on the types of discretionary
products and entertainment we offer. Weakened economic conditions, lowered employment levels or recessions
in any of our major markets may also significantly reduce consumer purchases of our products. Economic
conditions may also be negatively impacted by terrorist attacks, wars, and other conflicts, such as the current
Russia-Ukraine crisis, as well as natural disasters, increases in commodity prices or labor costs, or the prospect
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of such events. Such a weakened economic and business climate, as well as consumer uncertainty created by
such a climate, could harm our revenues and profitability.
Our success and profitability not only depend on consumer demand for our products, but also on our ability
to produce and sell those products at costs which allow us to make a profit. Whether due to inflation or other
factors, rising petroleum and material prices, increased transportation and shipping costs, and increased labor
costs in the markets in which our products are manufactured and sold all may further increase the costs we incur
to produce and transport our products, which in turn may reduce our margins, reduce our profitability, and harm
our business, in particular if we are unable to further adjust prices beyond what we have been able to do in fiscal
2021, as discussed above.
Consumer interests can change rapidly, and our success depends on the ongoing effectiveness of our
marketing and online initiatives to build consumer affinity for our brand and drive consumer demand for
our products and services.
We continue to update and evaluate our marketing initiatives, which are focused on building our brand,
sharing relevant product news, executing timely promotions and adapting to rapidly changing consumer
preferences. Our future growth and profitability will depend in large part upon the effectiveness and efficiency of
our integrated marketing and advertising programs, access to leading entertainment relationships resulting in
licensing relationships in a profitable manner and future marketing and advertising efforts that we undertake,
including our ability to:
•
create greater awareness and affinity of our brand, interactive shopping experience and products;
•
convert consumer awareness into store and e-commerce site visits and product purchases;
•
identify the optimal level of marketing spend and most efficient marketing channels;
•
select the right geographic areas in which to market;
• determine the appropriate creative message and media mix for marketing programs locally, nationally and
internationally; and
• effectively manage marketing costs (including creative and media) to maintain acceptable operating margins
and return on marketing investment.
Moreover, our branding and marketing efforts could be undermined by the nature of our interactive store
experience, as consumers make different choices in order to continue social distancing practices. The perception
that our experience may not be safe, in particular for vulnerable populations, could have a material adverse impact
on the effectiveness of our branding and marketing efforts which could negatively impact our financial results. Our
planned marketing expenditures may not result in increased total sales or generate sufficient levels of product and
brand awareness, which could also have a material adverse effect on our financial condition and profitability.
Additionally, we have shifted a number of our marketing programs to digital outlets which may not be as effective
as our more traditional, historical programs.
Our profitability could be adversely affected by fluctuations in petroleum products prices.
The profitability of our business depends to a certain degree upon the price of petroleum products, both as
a component of the transportation costs for delivery of inventory from our vendors to our stores and as a raw
material used in the production of our plush products and stuffing. Volatility in petroleum prices can be due to
many external factors that are beyond the Company's control including political, environmental, and economic
factors such as hostilities or other conflicts in oil producing areas (including the current Russia-Ukraine crisis),
limitations and/or disruptions in refining and pipeline capacity, and worldwide demand for petroleum. We are
unable to predict what the price of crude oil and the resulting petroleum products will be in the future. We may be
unable to pass along to our customers the increased costs that would result from higher petroleum prices.
Therefore, any such increase could have an adverse impact on our business and profitability.
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Our business may be adversely impacted at any time by a variety of significant competitive threats.
We operate in a highly competitive environment characterized by low barriers to entry. We compete against
a diverse group of competitors. Because we are primarily mall-based, we see our competition as those mall-
based retailers that compete for prime mall locations, including various apparel, footwear and specialty retailers.
As a retailer whose signature product is a stuffed animal that is typically purchased as a toy or gift, we also
compete with big box retailers and toy stores, as well as manufacturers that sell plush toys. Since we offer our
guests an experience as well as merchandise, we also view our competition as any company that competes for
our guests’ time and entertainment dollars, such as movie theaters, restaurants, amusement parks and arcades.
In addition, there are several small companies that operate “make your own” teddy bear and stuffed animal
experiences in retail stores and kiosks. Although we believe that none of these companies currently offer the
breadth and depth of the Build-A-Bear Workshop products and experience, we cannot be certain that they will
not compete directly with us in the future.
Many of our competitors have longer operating histories, significantly greater financial, marketing and other
resources, and greater name recognition. We cannot be certain that we will be able to compete successfully with
them in the future, particularly in geographic locations that represent new markets for us. If we fail to compete
successfully, our market share and results of operations could be materially and adversely affected.
The retail sector has experienced an immense increase in sales initiated online and using mobile
applications, as well as online sales for both in-store or curbside pick-up. Online and multi-channel retailers
continue to focus on delivery services, with customers increasingly seeking faster, guaranteed delivery times and
low-cost or free shipping. Our ability to be competitive on delivery times and delivery costs depends on many
factors, and our failure to successfully manage these factors and offer competitive delivery options could
negatively impact the demand for our products and our profit margins.
OPERATIONAL RISKS
If we are unable to generate interest in and demand for our interactive retail experience and products,
including being able to identify and respond to consumer preferences in a timely manner, our sales,
financial condition and profitability could be adversely affected.
We believe that our success depends in large part upon our ability to continue to attract new and repeat
guests with our interactive shopping experience, and our ability to anticipate, gauge and respond in a timely
manner to changing consumer preferences, such as online buying, and fashion trends including licensed
relationships. We cannot be certain that there will continue to be a demand for our “make-your-own stuffed animal”
interactive experience, including our store design and brand appearance, or for our stuffed animals, related
apparel and accessories. A decline in demand for our interactive shopping experience, our stuffed animals,
related apparel or accessories, or a misjudgment of consumer preferences, fashion trends or the demand for
licensed products, including those that are associated with new movie releases, could have a negative impact on
our business, financial condition and results of operations. In addition, due to COVID, we modified our interactive
shopping experience in order to comply with social distancing guidelines and sanitation practices, which could
have a negative impact on the appeal of our interactive shopping experience. Conversely, if we either do not
modify our experience to a sufficient degree to address safety concerns relative to social distancing, masking or
other remediation, or alternatively relax our remediation procedures more quickly than our customers desire, the
perception that we are not adequately addressing these concerns may adversely affect our brand.
Our future success depends, in part, on the popularity and consumer demand for brands of licensors such
as Disney, NBCUniversal, Lucasfilm, Warner Bros., and Nintendo. If we are not able to meet our contractual
commitments or are unable to maintain licensing agreements with key brands, our business would be adversely
affected. There can be no certainty that our access to licensed brands will continue to be successful or enable us
to maintain high levels of sales in the future and the timing of future entertainment projects may not coincide with
the timing of previous successes impacting our ability to maintain sales levels. In addition, if we miscalculate the
market for our merchandise or the purchasing preferences of our guests, we may be required to sell a significant
amount of our inventory at discounted prices or even below costs, thereby adversely affecting our financial
condition and profitability.
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Failure to successfully execute our omnichannel strategy and the cost of our investments in e-commerce
and digital technology may materially adversely affect our financial condition and profitability.
The retail business continues to rapidly evolve and consumers increasingly embrace digital shopping. As a
result, the portion of total consumer expenditures with retailers occurring through digital platforms is increasing
and the pace of this increase could continue to accelerate.
Our strategy, which includes investments in e-commerce platforms, digital technology, and other consumer
initiatives, may not adequately or effectively allow us to continue to grow our e-commerce business,
increase sales, and grow our position in the specialty retail and gifting and collectibles markets such as adult to
adult gifting (e.g. Heartbox), adult driven affinity (e.g. The Bear Cave), and occasion gifting (e.g. graduation,
Valentine's Day) which is in addition to our historically core consumer base of adult to children gifting. The success
of our strategy will depend on our ability to continue building and delivering a seamless omnichannel shopping
experience for our customers. With an increasing allocation of capital expenditures focused on digital initiatives,
our failure to successfully execute on individual components of this strategy may adversely affect our financial
performance. In addition, a greater concentration of e-commerce sales could result in a reduction in the amount
of traffic in our stores and materially adversely affect our financial performance.
Furthermore, the cost of certain investments in e-commerce and digital technology may adversely impact
our financial performance in the short-term and failure to realize the benefits of these investments may adversely
impact our financial performance over the longer term.
We are subject to risks associated with technology and digital operations.
Our operations are subject to numerous technology related risks, including risks related to the failure of the
computer systems that operate our point of sale and inventory systems, websites and mobile sites and their related
support systems. We engage key third-party business partners to support various functions of our business,
including, but not limited to, information technology, web hosting and cloud-based services. We, and those third-
party businesses that support us, are also subject to risks related to computer viruses, telecommunications
failures, and similar disruptions. Also, we may require additional capital in the future to sustain or grow our
technological infrastructure and digital commerce capabilities.
Business risks related to technology and digital commerce include risks associated with the need to keep
pace with rapid technological change, internet security risks, risks of system failure or inadequacy, governmental
regulation and legal uncertainties with respect to the internet, and collection of sales or other taxes by additional
states or foreign jurisdictions. If any of these risks materialize, it could have a material adverse effect on our
business. Further, as our online sales have increased and have become critical to our growth, the risk of any
interruption of our information technology system capabilities is heightened.
If we are unable to renew, renegotiate or replace our store leases or enter into leases for new stores on
favorable terms, or if we violate any of the terms of our current leases, our revenue and profitability could
be harmed.
We lease all of our corporately-managed store locations. The majority of our store leases contain provisions
for base rent plus percentage rent based on sales in excess of an agreed upon minimum annual sales level. A
number of our leases include a termination provision which applies if we do not meet certain sales levels during
a specified period, typically in the third to fourth year and the sixth to seventh year of the lease, which may be at
either the landlord’s option or ours. Although we have largely shifted our leases in North America to shorter term
leases to provide flexibility in aligning stores with market trends, this strategy has risk if we renew leases at a time
when commercial rental rates are higher than the rate we could have secured with a longer-term lease.
Furthermore, some of our leases contain various restrictions relating to change of control of our company. Our
leases also subject us to risks relating to compliance with changing shopping location rules and the exercise of
discretion by our landlords on various matters within these locations. We may not be able to maintain or obtain
favorable locations within these desirable shopping locations. The terms of new leases may not be as favorable,
which could cause an increase in store expenses negatively impacting overall profitability. If we execute
termination rights, we may incur expenses and charges associated with those closures that could negatively
impact our profitability.
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Additionally, several large landlords dominate the ownership of prime malls, particularly in the U.S. and
Canada, and because of our dependence on these landlords for a substantial number of our locations, any
significant erosion in their financial conditions or our relationships with these landlords could negatively affect our
ability to obtain and retain store locations. Further landlord consolidation may negatively impact our results of
operations.
Our leases in the U.K. and Ireland also typically contain provisions requiring rent reviews every five years
in which the base rent that we pay is adjusted to current market rates. These rent reviews require that base rents
cannot be reduced if market conditions have deteriorated but can be changed “upwards only.” We may be required
to pay base rents that are significantly higher than we have projected. As a result of these and other factors, we
may not be able to operate our European store locations profitably. If we are unable to do so, our results of
operations and financial condition could be harmed, and we may be required to record significant additional
impairment charges.
Our company-owned distribution center that services the majority of our stores in North America and our
third-party distribution center providers used in the western U.S. and Europe may be required to close and
operations may experience disruptions or may operate inefficiently.
The operation of our stores is dependent on our ability to distribute merchandise to locations throughout the
U.S., Canada, and Europe in a timely manner. We own a 350,000-square-foot distribution center in Groveport,
Ohio and rely on this warehouse to receive, store and distribute merchandise for the majority of our North
American stores. To operate this location, our ability to meet changing labor needs while controlling our costs is
subject to external factors such as labor laws, regulations, unemployment levels, prevailing wage rates, and
changing demographics. In addition, we rely on third parties to manage all of the warehousing and distribution
aspects of our business in the western U.S. and Europe. For example, as noted above, in Europe, we contract
with a third-party distribution center in Selby, England under an agreement that ends in January 2025. Any
significant interruption in the operation of the distribution centers due to natural disasters or severe weather,
events such as fire, accidents, power outages, system failures, public health issues such as the current COVID
pandemic (or other future pandemics), or other unforeseen causes could damage a significant portion of our
inventory. These factors may also impair our ability to adequately stock our stores and fulfill e-commerce
orders and could decrease our sales and increase our costs associated with our supply chain.
We may not be able to evolve our store locations over time to align with market trends, successfully
diversify our store models and formats in accordance with our strategic goals or otherwise effectively
manage our overall portfolio of stores which could adversely affect our ability to grow and could
significantly harm our profitability.
Our future results will largely depend on our ability to optimize store productivity and profitability by
strategically evolving our real estate portfolio to align with market trends while selectively opening new locations
and systematically refreshing our store base. For example, our strategy includes a focus on tourist locations due
to changing consumer preferences and declining traditional mall traffic and we cannot be certain that this strategy
will be successful. Our ability to manage our portfolio of stores in future years, in desirable locations, as well as to
operate stores profitably, particularly in multi-store markets, are key factors in our ability to achieve sustained
profitable growth. We cannot be certain when or whether desirable locations will become available, the number
of Build-A-Bear Workshop stores that we can or will ultimately open, or whether any such new or relocated stores
can be profitably operated. We may decide to close other stores in the future.
Additionally, in fiscal 2021 we operated 22 stores located within other retailers’ stores and 61 stores through
our "third-party wholesale" model and as such are subject to the operational risks of these retailers, including but
not limited to, ineffective store operations, labor disputes and negative publicity, all of which could have a negative
impact on our sales and operating performance.
INTERNATIONAL RISKS
We may not be able to operate our international corporately-managed locations profitably.
In addition to our U.S. locations, we currently operate stores in the U.K., Canada, and Ireland. Our future
success in international markets may be impacted by differences in consumer demand, regulatory and cultural
differences, economic conditions, public health issues such as COVID, changes in foreign government policies
11
and regulations, changes in trading status, compliance with U.S. laws affecting operations outside the U.S., such
as the Foreign Corrupt Practices Act, as well as other risks that we may not anticipate. Brand awareness in
international markets may be lower than in the U.S. and we may face higher labor and rent costs, as well as
different holiday schedules. Although we have realized benefits from our operations in the U.K. and Ireland, we
may be unable to continue to do so on a consistent basis. For example, in the U.K. we recorded a full valuation
allowance as of the end of fiscal 2020 on our deferred tax assets and continue to have a full valuation allowance
recorded against our deferred tax assets as of the end of fiscal 2021, and during fiscal 2020 we recorded $1.9
million in long-lived asset impairments including right-of-use assets. In addition, the impacts of COVID on our
internationally corporately-managed locations, including government mandated temporary store closures, limited
store operating hours, restricted crowd levels and reduced customer traffic and consumer spending, such as those
seen in the U.K. in 2020 and 2021, may affect profitability at these locations.
Additionally, we conduct business globally in many different jurisdictions with currencies other than U.S.
dollars. Our results could be negatively impacted by changes or fluctuations in currency exchange rates since we
report our consolidated financial results in U.S. dollars. For example, we may purchase products in U.S. dollars
but sell them to customers in local currencies, which exposes us to foreign exchange risk, as described in “Our
merchandise is manufactured by foreign manufacturers and we transact business in various foreign countries,
and the availability and costs of our products, as well as our product pricing, may be negatively affected by risks
associated with international manufacturing and trade and foreign currency fluctuations” below. In addition, we
could experience restrictions on the transfer of funds to and from foreign countries, including potentially negative
tax consequences.
We rely on a few global supply chain vendors to supply substantially all of our merchandise, and
significant price increases or any disruption in their ability to deliver merchandise could harm our ability
to source products and supply inventory to our stores.
We do not own or operate any factories that produce our plush products, clothing, shoes or accessories.
For fiscal 2021 and fiscal 2020, we purchased 74% and 77% of our merchandise from four vendors, respectively.
These vendors in turn contract for the production of merchandise with multiple manufacturing facilities. Prior to
2020, over 90% of merchandise received annally was produced in China, however, our efforts to diversify our
supply chain reduced China sourcing to 58% of merchandise received as production shifted primarily to Vietnam,
which provided 34% of our merchandise in 2021. Our relationships with our vendors generally are on a purchase
order basis and do not provide a contractual obligation to provide adequate supply or acceptable pricing on a
long-term basis. Our vendors could discontinue sourcing merchandise for us at any time. If any of our significant
vendors were to discontinue their relationship with us, or if the factories with which they contract were to suffer a
disruption in their production, we may be unable to replace the vendors in a timely manner, which could result in
short-term disruption to our inventory flow or quality of the inventory as we transition our orders to new vendors
or factories which could, in turn, disrupt our store operations and have an adverse effect on our business, financial
condition and results of operations. Such disruptions may result from public health issues such as the current
COVID pandemic (or other future pandemics), weather related events, natural disasters, trade restrictions, tariffs,
changes
laws, work stoppages or slowdowns, shipping capacity constraints, supply or
shipping interruptions, or other factors beyond our control. Additionally, in the event of a significant price increase
from these suppliers, we may not be able to find alternative sources of supply in a timely manner or raise prices
to offset the increases, which could have an adverse effect on our business, financial condition and results of
operations.
local
in
Our merchandise is manufactured by foreign manufacturers and we transact business in various foreign
countries, and the availability and costs of our products, as well as our product pricing, may be negatively
affected by risks associated with international manufacturing and trade and foreign currency fluctuations.
We purchase the majority of our merchandise directly from manufacturers in foreign countries, primarily in
China and Vietnam. Any event causing a disruption of imports, including the imposition of import restrictions, taxes
or fees, or labor strikes or lockouts and pandemics, could adversely affect our business. For example, our vendors
in China and Vietnam were temporarily closed for periods of time in 2020 and 2021 as a result of COVID, ceasing
production of inventory and supplies. The flow of merchandise from our vendors could also be adversely affected
by financial or political instability in any of the countries in which the goods we purchase are manufactured, if the
instability affects the production or export of merchandise from those countries. We are subject to trade restrictions
in the form of tariffs or quotas, or both, applicable to the products we sell as well as to raw material imported to
manufacture those products. Such tariffs or quotas are subject to change.
12
Our compliance with the regulations is subject to interpretation and review by applicable authorities. Change
in regulations or interpretation could negatively impact our operations by increasing the cost of and reducing the
supply of products available to us. In addition, decreases in the value of the U.S. dollar against foreign currencies,
particularly the Chinese renminbi and Vietnamese dong, could increase the cost of products we purchase from
overseas vendors. The pricing of our products in our stores may also be affected by changes in foreign currency
rates and require us to make adjustments that would impact our revenue and profit in various markets. Additionally,
because most of our foreign subsidiaries buy their inventory in U.S. dollars, we are also exposed to risk when
their functional currencies fluctuate relative to the U.S. Dollar. Our business in the U.K. may be adversely impacted
by ongoing uncertainty, fluctuations in currency exchange rates, changes in trade policies, or changes in labor,
immigration, tax, data privacy or other laws. Any of these effects, among others, could materially and adversely
affect our business, results of operations, and financial condition.
If we are unable to effectively manage our international franchises, attract new franchisees or if the laws
relating to our international franchises change, our growth and profitability could be adversely affected,
and we could be exposed to additional liability.
As of January 29, 2022, there were 72 Build-A-Bear Workshop international franchised stores. We cannot
ensure that our franchisees will be successful in identifying and securing desirable locations or in operating their
stores. International markets frequently have different demographic characteristics, competitive conditions,
consumer tastes and discretionary spending patterns than our existing corporately-managed markets, which
impact the performance of these stores. Additionally, our franchisees may experience financing, merchandising
and distribution expenses and challenges that are different from those we encounter in our corporately-
managed markets. The operations and results of our franchisees could be negatively impacted by the economic,
public health (such as COVID), or political factors in the countries in which they operate or foreign currency
fluctuations. These challenges, as well as others, could have a material adverse effect on their business and in
turn negatively impact our own business, financial condition and results of operations.
The success of our franchising business depends upon our ability to attract and maintain qualified
franchisees with sufficient financial resources to develop and grow their operations and upon the ability of those
franchisees to successfully develop and operate their franchised stores. Franchisees may not operate stores in a
manner consistent with our standards and requirements, may not hire and train qualified managers and other
store personnel, may not operate their stores profitably and may not pay amounts due to us. As a result, our
franchising operations may not be profitable. Moreover, our brand image and reputation may suffer. If franchisees
perform below expectations, we may transfer those agreements to other parties, take over the operations directly
or discontinue the franchise agreement. Furthermore, the interests of franchisees might sometimes conflict with
our interests. For example, whereas franchisees are concerned with their individual business objectives, we are
responsible for ensuring the success of the Build-A-Bear brand and all of our stores. In addition, we have recently
terminated franchise agreements covering Mexico, Thailand and Germany resulting in the closure of all stores in
these territories.
The laws of the various foreign countries in which our franchisees operate as well as compliance with U.S.
laws affecting operations outside the U.S., such as the Foreign Corrupt Practices Act, govern our relationships
with our franchisees. These laws, and any new laws that may be enacted, may detrimentally affect the rights and
obligations between us and our franchisees and could expose us to additional liability.
LEGAL, TECHNOLOGY AND INTELLECTUAL PROPERTY RISKS
We are subject to a number of risks related to disruptions, failures or security breaches of our information
technology infrastructure. If we improperly obtain or are unable to protect our data or violate privacy or
security laws or expectations, we could be subject to liability as well as damage to our reputation.
Information technology is a critically important part of our business operations. We depend on information
systems to process transactions, manage inventory, operate our websites, manage consumer databases,
purchase, sell and ship goods on a timely basis, and maintain cost-efficient operations. There is a risk that we
could experience a business interruption, theft of information, or reputational damage as a result of a cyber-attack,
such as an infiltration of a data center, or data leakage of confidential information either internally or at our third-
party providers. We may experience operational problems with our information systems as a result of system
failures, system implementation issues, viruses, malicious hackers, sabotage, code anomalies, “Acts of God,”
human error or other causes.
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Our business involves the storage and transmission of consumers’ personal information, such as personal
preferences and credit card information. We invest in industry-standard security technology to protect our data
and business processes against the risk of data security breaches and cyber-attacks. Our data security
management program includes identity, trust, vulnerability and threat management business processes, as well
as enforcement of standard data protection policies such as Payment Card Industry compliance. We measure our
data security effectiveness through industry accepted methods and remediate critical findings. Additionally, we
certify our major technology suppliers and any outsourced services through accepted security certification
measures. We maintain and routinely test backup systems and disaster recovery, along with external network
security penetration testing by an independent third party as part of our business continuity preparedness. Internet
privacy is a rapidly changing area and we may be subject to future requirements and legislation that are costly to
implement and may negatively impact our results.
While we believe that our security technology and processes are adequate in preventing security breaches
and in reducing cyber security risks, given the ever-increasing abilities of those intent on breaching cyber security
measures and given our reliance on the security and other efforts of third-party vendors, the total security effort
at any point in time may not be completely effective, and any such security breaches and cyber incidents could
adversely affect our business. Failure of our systems, including failures due to cyber-attacks that would prevent
the ability of systems to function as intended, could cause transaction errors, loss of customers and sales, and
could have negative consequences to us, our employees, and those with whom we do business. In addition, due
to COVID, our workforce is in a state of transition to a combination of remote work and flexible work schedules
opening us up for cyber-security threats and potential breaches as a result of increased employee usage of
networks other than company-managed. Any security breach involving the misappropriation, loss, or other
unauthorized disclosure of confidential information could also severely damage our reputation, expose us to the
risks of litigation and liability, and harm our business. While we carry insurance that would mitigate the losses to
an extent, such insurance may be insufficient to compensate us for potentially significant losses.
We currently obtain and retain personal information about our website users, store shoppers and loyalty
program members. Federal, state and foreign governments have enacted or may enact laws or regulations
regarding the collection and use of personal information, with particular emphasis on the collection of information
regarding minors. Such regulation may also include enforcement and redress provisions. We have a stringent,
comprehensive privacy policy covering the information we collect from our guests and have established security
features to protect our consumer database and websites. While we have implemented programs and procedures
designed to protect the privacy of people from whom we collect information which may include information
regarding their children, and our websites are designed to be fully compliant with all applicable regulations
including the Federal Children’s Online Privacy Protection Act, there can be no assurance that such programs will
conform to all applicable laws or regulations. If we fail to fully comply, we may be subjected to liability and damage
to our reputation. In addition, because our guest database primarily includes personal information of the parents
of children and children frequently interact with our websites, we are potentially vulnerable to charges from
parents, children’s organizations, governmental entities, and the media of engaging in inappropriate collection,
distribution or other use of data collected from children. Additionally, while we have security features, our security
measures may not protect users’ identities and our online safety measures may be questioned, which may result
in negative publicity or a decrease in visitors to our sites. If site users act inappropriately or seek unauthorized
contact with other users of the site, it could harm our reputation and, therefore, our business and we could be
subject to liability. For example, the EU’s General Data Protection Regulation (“GDPR”), which became effective
in May 2018, and the California Consumer Privacy Act (“CCPA”), which became effective in January 2020, greatly
increase the jurisdictional reach of EU and California law, respectively, and adds a broad array of requirements
related to personal data, including individual notice and opt-out preferences and the public disclosure of significant
data breaches. Additionally, violations of GDPR can result in fines calculated as a percentage of a company’s
annual revenue and CCPA provides civil penalty violations, as well as a private right of action for data breaches.
Other governments have enacted or are expected to enact similar data protection laws and are considering data
localization laws that require data to stay within their borders. All of these evolving compliance and operational
requirements impose significant costs and regulatory risks that are likely to increase over time.
A determination that there have been violations of laws relating to our practices under communications-
based laws could also expose us to significant damage awards, fines and other penalties that could, individually
or in the aggregate, materially harm our business. In particular, because of our marketing and other promotional
texts, emails and other communications we send to our users, communications laws that provide a specified
monetary damage award or fine for each violation (such as those described below) could result in particularly
large awards or fines. For example, the Federal Communications Commission amended certain of its regulations
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under the Telephone Consumer Protection Act, or TCPA, in 2012 and 2013 in a manner that has increased our
exposure to liability for certain types of telephonic communication with customers, including but not limited to text
messages to mobile phones. Under the TCPA, plaintiffs seek actual monetary loss or statutory damages of $500
per violation, whichever is greater, and courts could treble the damage award for willful or knowing violations.
Given the varied number of communications we send to our users, a determination that there have been violations
of the TCPA, or other communications-based statutes, has exposed us to significant damage awards that could,
individually or in the aggregate, materially harm our business. We are currently subject to one lawsuit, and a
possible class action lawsuit, containing allegations that our business violated the TCPA.
We may fail to renew, register or otherwise protect our trademarks or other intellectual property and may
be sued by third parties for infringement or misappropriation of their proprietary rights, which could be
costly, distract our management and personnel and result in the diminution in value of our trademarks
and other important intellectual property.
Other parties have asserted in the past, and may assert in the future, trademark, patent, copyright or other
intellectual property rights that are important to our business. We cannot be certain that others will not seek to
block the use of or seek monetary damages or other remedies for the prior use of our brand names or other
intellectual property or the sale of our products or services as a violation of their trademark, patent or other
proprietary rights. Defending any claims, even claims without merit, could be time-consuming, result in costly
settlements, litigation or restrictions on our business and damage our reputation.
In addition, there may be prior registrations or use of intellectual property in the U.S. or foreign countries for
similar or competing marks or other proprietary rights of which we are not aware. In all such countries, it may be
possible for any third-party owner of a national trademark registration or other proprietary right to enjoin or limit
our expansion into those countries or to seek damages for our use of such intellectual property in such countries.
In the event a claim against us was successful and we could not obtain a license to the relevant intellectual
property or redesign or rename our products or operations to avoid infringement, our business, financial condition
or results of operations could be harmed. Securing registrations does not fully insulate us against intellectual
property claims, as another party may have rights superior to our registration, or our registration may be vulnerable
to attack on various grounds.
We may suffer negative publicity or be sued if the manufacturers of our merchandise or of Build-A-Bear
branded merchandise sold by our licensees ship any products that do not meet current safety standards
or production requirements or if such products are recalled or cause injuries.
Although we require our manufacturers to meet governmental safety standards, including food safety
regulations for certain locations, and our product specifications as well as submitting our products for testing, we
cannot fully control the materials used by, or the workmanship of, our manufacturers. Additionally, through our
agreements, our licensees are required to ensure that their manufacturers meet applicable safety and testing
standards. If any of these manufacturers ship merchandise that does not meet our required standards, we could
in turn experience negative publicity or be sued.
Many of our products are used by small children and infants who may be injured from usage if age grading
or warnings are not followed. We may decide or be required to recall products or be subject to claims or lawsuits
resulting from injuries. For example, we have voluntarily recalled six products in the past ten years due to possible
safety issues. While our vendors have historically reimbursed us for certain related expenses, negative publicity
in the event of any recall or if any children are injured from our products could have a material adverse effect on
sales of our products and our business, and related recalls or lawsuits with respect to such injuries could have a
material adverse effect on our financial position. Additionally, we could incur fines related to consumer product
safety issues from the regulatory authorities in the countries in which we operate. Although we currently have
liability insurance, we cannot assure you that it would cover product recalls or related fines, and we face the risk
that claims or liabilities will exceed our insurance coverage. Furthermore, we may not be able to maintain adequate
liability insurance in the future. While our licensing agreements typically indemnify us against financial losses
resulting from a safety or quality issue from Build-A-Bear branded products sold by our licensees, such
indemnification may not fully protect us financially and, whether or not it does, our brand reputation may be
negatively impacted.
15
We may suffer negative publicity or be sued if the manufacturers of our merchandise violate labor laws
or engage in practices that consumers believe are unethical.
We rely on our sourcing personnel to select manufacturers with legal and ethical labor practices, but we
cannot control the business and labor practices of our manufacturers. If one of these manufacturers violates labor
laws or other applicable regulations or is accused of violating these laws and regulations, or if such a manufacturer
engages in labor or other practices that diverge from those typically acceptable in the U.S., we could in turn
experience negative publicity, reputational harm, increased compliance and operating costs or be sued.
We may suffer negative publicity or a decrease in sales or profitability if the products from other
companies that we sell in our stores do not meet our quality standards or fail to achieve our sales
expectations.
We may expand our product assortment to include products manufactured by other companies. If sales of
such products do not meet our expectations or are impacted by competitors’ pricing, we may have to take
markdowns or employ other strategies to liquidate the product. If other companies do not meet quality or safety
standards or violate any manufacturing or labor laws, we may suffer negative publicity and may not realize our
sales plans.
RISKS RELATED TO OWNING OUR COMMON STOCK
Fluctuations in our operating results could reduce our cash flow, or trigger restrictions under our credit
agreement, and we may be unable to repurchase shares at all or at the times or in the amounts we desire,
or the results of our share repurchase program may not be as beneficial as we would like.
From time to time, we have repurchased shares under plans authorized by our Board of Directors, including
a $25 million program adopted in November 2021. Such programs generally do not require us to repurchase any
specific number of shares, and may be modified, suspended or terminated at any time without prior notice. Shares
repurchased under the program will be subsequently retired. If our cash flow decreases as a result of decreased
sales, increased expenses or capital expenditures or other uses of cash, we may not be able to repurchase shares
of our common stock at all or at times or in the amounts we desire. As a result, the results of any share repurchase
program may not be as beneficial as expected. In addition, our credit agreement restricts our ability to repurchase
shares when certain liquidity conditions exist.
Fluctuations in our quarterly results of operations could cause the price of our common stock to
substantially decline.
Retailers generally are subject to fluctuations in quarterly results. Our operating results for one period may
not be indicative of results for other periods, and may fluctuate significantly due to a variety of factors, including:
•
•
•
•
•
•
•
•
•
the profitability of our stores;
increases or decreases in total revenues;
changes in general economic conditions and consumer spending patterns;
the timing and frequency of our marketing initiatives;
changes in foreign currency exchange rates;
seasonal shopping patterns;
the timing of store closures, relocations and openings and related expenses;
the effectiveness of our inventory management;
changes in consumer preferences;
16
•
the continued introduction and expansion of merchandise offerings including those associated with major
motion pictures;
• actions of competitors or mall anchors and co-tenants;
• weather conditions and natural disasters;
• public health issues such as COVID, and associated impacts on store openings and store operations
•
•
the timing and frequency of national media appearances and other public relations events; and
the impact of a 53rd week in our fiscal year, which occurs approximately every six years, (e.g., next to
occur in fiscal 2023).
If our future quarterly results fluctuate significantly or fail to meet the expectations of the investment
community, then the market price of our common stock could decline substantially.
The market price of our common stock is subject to volatility, which could attract the interest of activist
shareholders.
During fiscal 2021, the trading price of our common stock fluctuated between $4.65 and $23.50 per share.
The market price of our common stock may be significantly affected by a number of factors, including, but not
limited to, actual or anticipated variations in our operating results or those of our competitors as compared to
analyst expectations, changes in financial estimates by research analysts with respect to us or others in the retail
industry, and announcements of significant transactions (including mergers or acquisitions, divestitures, joint
ventures, stock repurchases or other strategic initiatives) by us or other similar companies. In addition, the equity
markets have experienced price and volume fluctuations that affect the stock price of companies in ways that
have been unrelated to an individual company’s operating performance. The price of our common stock may
continue to be volatile, based on factors specific to our company and industry, as well as factors related to the
equity markets overall. Moreover, such volatility could attract the interest of activist shareholders. Responding to
activist shareholders can be costly and time-consuming, and the perceived uncertainties as to our future direction
resulting from responding to activist strategies could itself then further affect the market price and volatility of our
common stock.
Our certificate of incorporation and bylaws and Delaware law contain provisions that may prevent or
frustrate attempts to replace or remove our current management by our stockholders, even if such
replacement or removal may be in our stockholders’ best interests.
Our basic corporate documents and Delaware law contain provisions that might enable our management
to resist a takeover. These provisions:
•
restrict various types of business combinations with significant stockholders;
• provide for a classified board of directors;
•
limit the right of stockholders to remove directors or change the size of the board of directors;
•
limit the right of stockholders to fill vacancies on the board of directors;
•
•
limit the right of stockholders to act by written consent and to call a special meeting of stockholders or
propose other actions;
require a higher percentage of stockholders than would otherwise be required to amend, alter, change or
repeal our bylaws and certain provisions of our certificate of incorporation; and
• authorize the issuance of preferred stock with any voting rights, dividend rights, conversion privileges,
redemption rights and liquidation rights and other rights, preferences, privileges, powers, qualifications,
limitations or restrictions as may be specified by our board of directors.
17
These provisions may:
• discourage, delay or prevent a change in the control of our company or a change in our management, even
if such change may be in the best interests of our stockholders;
• adversely affect the voting power of holders of common stock; and
•
limit the price that investors might be willing to pay in the future for shares of our common stock.
GENERAL RISKS
We may not be able to operate successfully if we lose key personnel, are unable to hire qualified additional
personnel, or experience turnover of our management team.
The success of our business depends upon the quality of associates throughout our organization and our
ability to attract and retain qualified key employees. The loss of certain key employees, our inability to attract and
retain other qualified key employees or a labor shortage that reduces the pool of qualified candidates could have
a material adverse effect on our business, financial condition and results of operations.
We may be unsuccessful in acquiring businesses or engaging in other strategic transactions, which may
negatively affect our financial condition and profitability.
We may from time to time engage in discussions and negotiations regarding acquisitions or other strategic
transactions that could affect our financial condition, profitability or other aspects of our business. There can be
no assurance that we will be able to identify suitable acquisition targets that we believe complement our existing
business. There can also be no assurance that if we acquire a business, we will be successful in integrating it into
our overall operations, or that any such acquired company will operate profitably or will not otherwise adversely
impact our financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Stores
We lease all of our store locations. As of January 29, 2022, we operated 346 retail stores located primarily
in major malls throughout the U.S., Canada, the U.K., and Ireland in our DTC segment.
Non-Store Properties
In addition to leasing all of our store locations, we own a warehouse and distribution center in Groveport,
Ohio, which is utilized primarily by our DTC segment. The facility is approximately 350,000 square feet and
includes our North American e-commerce fulfillment center. We lease 51,600 square feet in a building that we
use as our corporate headquarters in downtown St. Louis, Missouri with a lease of eleven years commencing in
June 2020. We also lease an approximately 9,250 square foot portion of our prior headquarters in Overland,
Missouri with the lease commencing in July 2020 and continuing through June 2023. In the U.K., we lease
approximately 6,500 square feet for our regional headquarters in Slough, England under a lease that commenced
in March 2016 with a term of 10 years. We also contract with a third-party warehouse in southern California to
service our West Coast stores. The contract has a one-year term and is renewable. In Europe, we contract with a
third-party distribution center in Selby, England under an agreement that ends in January 2025. This agreement
contains clauses that allow for termination if certain performance criteria are not met. In Asia, we contract with a
third-party distribution center and office space in Shanghai, China, both of which end in April 2023.
18
ITEM 3.
LEGAL PROCEEDINGS
From time to time, we are involved in ordinary routine litigation typical for companies engaged in our line of
business, including actions seeking to enforce our intellectual property rights or to determine the validity and scope
of the proprietary rights of others. Information with respect to certain legal proceedings is set forth in Note 10
Commitments and Contingencies to the Consolidated Financial Statements (included in Part IV of this form 10-K)
and is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
19
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol “BBW.” Our
common stock commenced trading on the NYSE on October 28, 2004.
As of April 11, 2022, the number of holders of record of the Company’s common stock totaled approximately
1,976.
ISSUER PURCHASES OF EQUITY SECURITIES
(c) Total
Number of
Shares (or
Units)
Purchased as
Part of
Publicly
Announced
Plans or
Programs
(b) Average
Price Paid Per
Share (or Unit)
(2)
(a) Total
Number of
Shares (or
Units)
Purchased (1)
(d) Maximum
Number (or
Approximate
Dollar Value) of
Shares (or
Units) that May
Yet Be
Purchased
Under the Plans
or Programs (3)
-
21,996,093
20,641,704
20,641,704
Period
Oct 31, 2021 - Nov 27, 2021 .........
Nov 28, 2021 - Jan 1, 2022 ...........
Jan 2, 2022 - Jan 29, 2022 ...........
Total ...........................................
- $
181,409
78,699
260,108 $
-
17.37
16.83
17.21
- $
166,855
78,699
245,554 $
(1) Includes shares of our common stock delivered to us in satisfaction of the tax withholding obligation of
holders of restricted shares which vested during the quarter. Our equity incentive plans provide that the
value of shares delivered to us to pay the withholding tax obligations is calculated at the closing trading
price of our common stock on the date the relevant transactions occur.
(2) Average Price Paid Per Share includes commissions.
(3) In November 2021, the Board of Directors adopted a share repurchase program authorizing the repurchase
of up to $25 million of our common stock. This program authorizes the Company to repurchase shares
through November 30, 2023 and does not require the Company to repurchase any specific number of
shares, and may be modified, suspended or terminated at any time without prior noticed. Shares
repurchased under the program will be subsequently retired.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the past three years.
ITEM 6.
SELECTED FINANCIAL DATA
Not applicable.
20
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially
from the results discussed in the forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in “Risk Factors” and elsewhere in this Annual Report on Form 10-K. The
following section is qualified in its entirety by the more detailed information, including our financial statements and
the notes thereto, which appears elsewhere in this Annual Report on Form 10-K.
Business Overview
Build-A-Bear Workshop started as a mall-based, experiential specialty retailer where children and their
families could create their own stuffed animals. Over the last nearly 25 years, Build-A-Bear has become a brand
with high consumer awareness and positive affinity with over 200 million furry friends made by guests around the
world. We seek to provide outstanding guest service and experiences across all channels and touch points
including our stores, our e-commerce sites, our mobile sites and apps as well as traditional, digital and social
media. We believe the hands-on and interactive nature of our stores, our personal service model and engaging
digital shopping experiences result in guests forming an emotional connection with our brand which has multi-
generational appeal that captures today’s zeitgeist including desire for experience, personalization and “DIY” while
being recognized as trusted, giving, and a part of pop culture.
We operate a vertical retail channel with stores that feature a unique combination of experience and product
in which guests can “make their own stuffed animals” by participating in the stuffing, fluffing, dressing,
accessorizing and naming of their own teddy bears and other stuffed animals. We also operate e-commerce sites
that focus on gift-giving, collectible merchandise and licensed products that appeal to consumers that have an
affinity for characters from a range of entertainment, sports, art, and gaming properties. Our engaging digital
purchasing experiences include our online “Bear-Builder”, the animated “Bear Builder 3D Workshop”, an age-
gated adult-focused “Bear Cave” and the recently introduced “HeartBox” gift site. Our retail stores also act as “mini
distribution centers” that provide efficient omnichannel support for our growing digital demand. The primary
consumer target for our retail stores is families with children while our e-commerce sites focus on collectors and
gift givers that are primarily tweens, teens and adults. We have also extended our business model to develop a
circle of continuous engagement by leveraging our brand strength and owned intellectual properties through the
creation of engaging content for kids and adults while also offering products at wholesale and in non-plush
consumer categories via outbound licensing agreements with leading manufacturers.
Our strategy includes leveraging our brand strength to continue to strategically evolve our brick-and-mortar
retail footprint beyond traditional malls with a versatile range of formats and locations including tourist destinations,
expand into international markets primarily via a franchise model, and broaden the consumer base beyond
children by adding teens and adults with entertainment/sports licensing, collectible and gifting offerings. Build-A-
Bear’s pop-culture and multi-generational appeal have also played a key role in the Company’s digital
transformation with a focus on accelerating our initiatives to expand our digitally-driven, diversified omnichannel
capabilities that offer interactive entertainment experiences via both physical and e-commerce engagement,
targeting a range of consumer segments and purchasing occasions.
As of January 29, 2022, we had 346 corporate-managed stores globally, 61 locations operating through our
"third-party retail" model in which we sell our products on a wholesale basis to other companies that then in turn
execute our retail experience, and 72 franchised stores operating internationally under the Build-A-Bear Workshop
brand. In addition to our stores, we sold product on our company-owned e-commerce sites.
We operate in three segments that share the same infrastructure, including management, systems,
merchandising and marketing, and generate revenues as follows:
• Direct to Consumer (“DTC”) – Corporately-managed retail stores located in the U.S., Canada, Puerto Rico,
the U.K., Ireland, and two e-commerce sites as well as Denmark and China which have now closed;
• Commercial – Transactions with other businesses, mainly comprised of wholesale product sales and
•
licensing our intellectual property, including entertainment properties, for third-party use; and
International franchising – Royalties as well as product and fixture sales from other international operations
under franchise agreements.
21
Selected financial data attributable to each segment for fiscal 2021 and 2020 are presented in Note
15 — Segment Information to our consolidated financial statements included elsewhere in this Annual Report on
Form 10-K.
At the beginning of fiscal 2021, our U.S. store portfolio was open and operating while our stores in the U.K.,
Ireland and Canada remained temporarily closed due to the pandemic. In April 2021, stores in the U.K. reopened
as the government lifted lockdown restrictions resulting in almost all of our stores operating at the end of the 2021
first fiscal quarter with the remaining stores in the U.K. and Ireland opening in the second fiscal quarter thereby
ending that period with all stores open in those geographies. The majority of our Canadian stores remained
temporarily closed at the beginning of the second quarter with the majority reopening in June 2021 and with all
stores ending the second fiscal quarter open. Our year-over-year results discussed below are impacted by prior
year store closures and operating hour reductions as a result of the pandemic.
Our consolidated net income was $47.3 million in fiscal 2021 compared to net loss of $23.0 million in fiscal
2020. We believe that we have a concept that has broad demographic appeal which, for North American stores
open for the entire year averaged net retail sales per store of $1.0 million and $0.6 million in fiscal 2021 and 2020,
respectively. We use store contribution as the key performance metric for our retail stores. Consolidated store
contribution, which consists of store location net retail sales less cost of product, marketing and store related
expenses, as a percentage of net retail sales was 27.3% for fiscal 2021 and 8.5% for fiscal 2020, the latter
reflecting the negative impact of COVID. Non-store general and administrative expenses are excluded as are our
revenues and expenses associated with e-commerce sites and adjustments to deferred revenue related to gift
card breakage and our loyalty program. The diversification of our real estate portfolio and shift to smaller more
flexible store formats may result in lower average store revenue but is expected to improve store contribution on
a long-term basis. See “Non-GAAP Financial Measures” for a reconciliation of store contribution to net income.
The increase in consolidated store contribution as a percent of net retail sales in fiscal 2021 compared to
fiscal 2020 was due to increased retail gross margin by 1,240 basis points primarily driven by increased leverage
of fixed occupancy costs as a percent of revenue by 1,048 basis points.
We ended fiscal 2021 with no borrowings under our credit agreement and with $32.8 million in cash, cash
equivalents and restricted cash after investing $8.1 million in capital projects throughout the year. In November
2021, our Board of Directors authorized a share repurchase program of up to $25 million and as of January 29,
2022, we had utilized $4.4 million in cash to repurchase 245,554 shares under the program. Additionally, we paid
a special dividend of $19.9 million to shareholders of record as of December 10, 2021.
Following is a description and discussion of the major components of our statement of operations:
Revenues
Net retail sales, commercial revenue and international franchising: See Note 3 — Revenue to the consolidated
financial statements for additional accounting information.
We use net retail sales per square foot as a performance measure for our business. The following table
details net retail sales per square foot for stores open throughout the fiscal year other than periods of temporary
government-mandated closures, for the periods presented:
Fiscal year ended
January 29, January 30,
Net retail sales per square foot
North America (1) ................................................................................................. $
United Kingdom (2) ............................................................................................... £
2022
2021
404 $
418 £
234
199
(1)
(2)
Net retail sales per square foot in North America represents net retail sales from stores open throughout
the entire period in North America, excluding e-commerce sales, divided by the total leased square footage
of such stores.
Net retail sales per square foot in the U.K. represents net retail sales from stores open throughout the
entire period in the U.K., excluding e-commerce sales, divided by the total selling square footage of such
stores.
22
Costs and Expenses
Cost of merchandise sold: Cost of merchandise sold is driven primarily by our retail segment. Cost of
merchandise sold – retail includes the cost of the merchandise, including royalties paid to licensors of third party
branded merchandise, store occupancy cost, including store depreciation and store asset impairment charges (if
not disclosed separately due to materiality) (See Note 6 — Property and Equipment, net to the consolidated
financial statements for additional accounting information regarding store asset impairment), cost of warehousing
and distribution, packaging, stuffing, damages and shortages, and shipping and handling costs incurred in
shipment to customers. Retail gross margin is defined as net retail sales less the cost of merchandise sold - retail.
For the commercial segment, cost of merchandise includes the cost of merchandise sold to third-party retailers
on a wholesale basis for sale within their stores. For the franchise segment, cost of merchandise includes the sale
of furniture, fixtures, and supplies to our franchise partners.
Selling, general and administrative expense (“SGA”): These expenses include store payroll and benefits,
advertising, credit card fees, store supplies and normal store pre-opening and closing expenses as well as central
office general and administrative expenses, including costs for management payroll, benefits, incentive
compensation, travel, information systems, accounting, insurance, legal and public relations. These expenses
also include depreciation of central office assets and the amortization of other assets. Certain store expenses
such as credit card fees historically have increased or decreased proportionately with net retail sales. In addition,
bad debt expenses and accounts receivable related charges are recorded in SGA. Additionally, as a result of
COVID, governments enacted relief legislation and stimulus packages to help combat the economic effects of the
pandemic through such things as payroll expense reimbursement and business grants, whose effects are
recorded within SGA.
Stores
Corporately-managed locations:
The number of Build-A-Bear Workshop stores in the U.S., Canada and Puerto Rico (collectively, North America),
the U.K. and Ireland (collectively, Europe) and China for the last two fiscal years is summarized as follows:
January 29, 2022
January 30, 2021
Fiscal year ended
Beginning of period ...
Opened ......................
Closed .......................
End of period .............
North
America Europe China Total America Europe China Total
372
3
(21)
354
305
5
(5)
305
354
5
(13)
346
316
3
(14)
305
55
-
(7)
48
48
-
(7)
41
1
-
(1)
-
1
-
-
1
North
During fiscal 2021, our retail business model continued to evolve to address changing shopping patterns by
diversifying our locations, formats and geographies. We are updating our store portfolio with our Discovery format,
which represented 42% of our store base as of January 29, 2022. During fiscal 2021, we executed 5 planned new
store openings in North America, all Discovery format and 4 of which were in tourist sites. Through our third-party
retail model, there were 61 stores in operation at the end of the fiscal year with relationships that included Carnival
Cruise Line, Great Wolf Lodge Resorts, Landry's and Beaches Family Resorts. As in prior years, we operated in
a number of other non-traditional locations as well as shop-in-shop arrangements within other retailers’
stores. Temporary locations generally have lease terms of two to eighteen months. These specific sites are
designed to capitalize on short-term opportunities. In the future, we expect to close certain stores in accordance
with natural lease events as an ongoing part of our real estate management and day-to-day operational plans.
23
International Franchise Locations:
Our first franchisee location was opened in November 2003. All franchised stores have similar signage,
store layout and merchandise assortments as our corporately-managed stores. As of January 29, 2022, we had
six master franchise agreements, which typically grant franchise rights for a particular country or group of
countries, covering an aggregate of 10 countries.
The number of international, franchised stores opened and closed for the periods presented below is
summarized as follows:
Fiscal year ended
January 29,
2022
January 30,
2021
Beginning of period ...................................................................................
Opened ..................................................................................................
Closed ....................................................................................................
End of period .............................................................................................
71
9
(8 )
72
92
8
(29 )
71
As of January 29, 2022, the distribution of franchised locations among these countries was as follows:
South Africa ............................................................................................................................
Australia ..................................................................................................................................
India (1) ....................................................................................................................................
China (2) ...................................................................................................................................
Gulf States (3) ..........................................................................................................................
Chile ........................................................................................................................................
Total ........................................................................................................................................
20
19
11
10
6
6
72
(1) India master franchise agreement includes Sri Lanka where no stores are currently open.
(2) China master franchise agreement includes Hong Kong where no stores are currently open.
(3) Gulf States master franchise agreement includes Kuwait, Qatar and the United Arab Emirates which all
have stores as well as Bahrain and Oman where no stores are currently open.
In the ordinary course of business, we anticipate signing additional master franchise agreements in the future
and terminating other such agreements. We source fixtures and other supplies for our franchisees from China
which significantly reduces the capital and lowers the expenses required to open franchises. We are leveraging
new formats that have been developed for our corporately-managed locations such as concourses and shop-in-
shops with our franchisees.
Results of Operations
2021 Overview
Our performance continues to reflect the success of our strategy which has allowed us to put the building
blocks in place to develop a powerful platform to support our initiatives to deliver consistent profitable growth. We
believe our elevated omnichannel business model, which includes a highly profitable e-commerce and experiential
retail store base, complimented by diversified revenue streams and disciplined expense and balance sheet
management, puts us in a solid position for continued future success. We delivered a full year pre-tax profit of
$50.7 million, which was the highest in our company’s history. In response to a variety of external pressures
including changes in consumer shopping habits resulting in the rapid rise of the digital economy and shifting mall
traffic patterns, we remained focused on accelerating and expanding our key initiatives by investing in and
executing plans to improve operations and profitability. While we believe the majority of our positive performance
was driven by the disciplined execution of our strategic initiatives, impact from pent-up demand and government
stimulus may have also helped to contribute to a 61.2% increase in total revenue to $411.5 million in fiscal 2021.
We ended the year with cash and cash equivalents of $32.8 million with no outstanding borrowings on our credit
facility. We returned $24.3 million in value to shareholders through $4.4 million in share repurchases and payment
of a $19.9 million special dividend in fiscal 2021.
24
The following table sets forth, for the periods indicated, selected statement of operations data expressed as
a percentage of total revenues, except where otherwise indicated. Percentages do total due to immaterial
rounding:
Fiscal year ended
January 29,
2022
January 30,
2021
Revenues:
Net retail sales ............................................................................
Commercial revenue ..................................................................
International franchising .............................................................
Total revenues ...............................................................
96.6 %
2.8
0.6
100.0
97.6 %
1.7
0.7
100.0
Costs and expenses:
Cost of merchandise sold - retail (1) ............................................
Store asset impairment ..............................................................
Cost of merchandise sold - commercial (1) .................................
Cost of merchandise sold - international franchising (1) .............
Total cost of merchandise sold .....................................
Consolidated gross profit ..................................................................
Selling, general and administrative ............................................
Interest (income) expense, net ...................................................
Income (loss) before income taxes ...............................
Income tax expense ..........................................................................
Net income (loss) ..........................................................
46.9
0.0
49.1
66.1
47.0
53.0
40.6
(0.0 )
12.3
0.8
11.5
59.3
2.9
41.5
55.9
61.8
38.2
46.1
0.0
(7.9 )
1.1
(9.0 )
Retail gross margin (2) .......................................................................
53.1 %
40.7 %
(1) Cost of merchandise sold – retail is expressed as a percentage of net retail sales. Cost of merchandise sold
– commercial is expressed as a percentage of commercial revenue. Cost of merchandise sold - international
franchising is expressed as a percentage of international franchising revenue.
(2) Retail gross margin represents net retail sales less cost of merchandise sold – retail; retail gross margin
percentage represents retail gross margin divided by net retail sales.
Fiscal Year Ended January 29, 2022 Compared to Fiscal Year Ended January 30, 2021
Total revenues. Net retail sales were $397.7 million for fiscal 2021, compared to $249.2 million for fiscal 2020,
an increase of $148.5 million or 59.6%, driven by an increase in North America of $138.0 million or 62.7% and in
Europe of $17.5 million or 51.8%. The components of this increase are as follows:
Fiscal year
ended
January 29, 2022
(dollars in millions)
Impact from:
Existing stores ........................................................................................................................ $
E-commerce ...........................................................................................................................
New stores .............................................................................................................................
Store closures ........................................................................................................................
Gift card breakage .................................................................................................................
Deferred revenue estimates ..................................................................................................
Foreign currency translation ..................................................................................................
$
138.0
5.7
2.4
(3.1 )
2.7
1.5
1.3
148.5
25
The retail revenue increase was primarily the result of the increase in store operating days of corporately-
managed stores due to a reduced impact from COVID in fiscal 2021 and consolidated e-commerce sales.
Commercial revenue was $11.5 million for fiscal 2021 compared to $4.4 million for fiscal 2020,
an increase of $7.1 million or 159.9% primarily due to increased sales volume from our commercial accounts
versus the prior year which was impacted by pandemic driven closures of third-party retail locations serviced by
these customers.
Revenue from international franchising was $2.3 million for fiscal 2021 compared to $1.7 million for fiscal
2020. This $0.7 million or 39.0% increase was primarily due to having more stores in operation in 2021 compared
to the same period in 2020 when significantly more locations were temporarily closed due to pandemic-related
mandated government restrictions.
Retail gross margin. Retail gross margin was $211.3 million in fiscal 2021 compared to $101.4 million in
fiscal 2020, an increase of $109.9 million or 108.3% As a percentage of net retail sales, retail gross margin
increased to 53.1% for fiscal 2021 from 40.7% for fiscal 2020, or 1,240 basis points as a percentage of net retail
sales. The increase in gross margin was the result of growth in total revenues driving increased leverage of fixed
occupancy costs of 1,048 basis points compared to the prior year, overall lower promotional activity resulting is
less discounts, and strategic price increases on highly sought-after products. These strong results were partially
offset by increased air and ocean freight costs.
Impairment of long-lived assets, including right-of-use assets. We incurred no impairment charges in fiscal
2021. This compared to impairment charges of $7.3 million recorded in fiscal 2020.
Selling, general and administrative. Selling, general and administrative expenses were $167.3 million
or 40.6% of consolidated revenue for fiscal 2021 as compared to $117.6 million or 46.1% of consolidated revenue
for fiscal 2020. The primary increase in overall expense was primarily due to higher labor costs given the re-
opening of our store base, the recording of full corporate salaries in fiscal 2021 as opposed to the prior year, and
an increase incentive compensation expense due to our financial performance. Additionally, we saw an increase
in advertising expense of $8.3 million or 102.5% driven by depressed advertising spend in fiscal 2020 while we
were in a cash management position due to COVID.
Interest expense (income), net. For fiscal 2021, we had an immaterial amount of interest income compared
to an immaterial amount of interest expense in fiscal 2020, resulting in an immaterial difference in activity.
Provision for income taxes. The provision for income taxes was $3.4 million in fiscal 2021 compared to
$2.8 million in fiscal 2020. The 2021 effective rate of 6.8% differed from the statutory rate of 21% primarily due to
the tax benefit resulting from the reversal of the valuation allowance in North America of $7.8 million. The 2020
effective rate of (13.9%) differed from the statutory rate of 21% primarily due to no tax benefit being recorded on
the pretax loss as a full valuation allowance had been recorded globally. Fiscal 2020 was also impacted by the
$3.3 million valuation allowance recorded on the beginning balance of the net deferred tax assets in certain
jurisdictions.
Non-GAAP Financial Measures
We use the term “store contribution” throughout this Annual Report on Form 10-K. Store contribution
consists of income (loss) before income tax expense, interest, general and administrative expense, excluding
income from franchise and commercial activities and contribution from our e-commerce sites, locations, other than
periods of temporary government-mandated closures, for the full fiscal year and adjustments to deferred revenue
related to our loyalty program and gift card breakage. This term, as we define it, may not be comparable to similarly
titled measures used by other companies and is not a measure of performance presented in accordance with U.S.
generally accepted accounting principles (“GAAP”). We use store contribution as a measure of our stores’
operating performance.
26
Store contribution should not be considered a substitute for net income, net income per store, cash flows
provided by operating activities, cash flows provided by operating activities per store, or other income or cash flow
data prepared in accordance with U.S. GAAP. Additionally, store-level performance measures are inherently
limited in that they exclude certain expenses that are recurring in nature and are necessary to support the
operation and development of our stores. We believe store contribution is useful to investors in evaluating our
operating performance because it, along with the number of stores in operation, directly impacts our profitability.
The following table sets forth a reconciliation of store contribution to net income (loss) for our corporately-
managed stores located in the U.S., Canada and Puerto Rico (collectively “North America”); stores located in the
U.K. and Ireland (collectively “Europe”); and China, for our consolidated store base (dollars in thousands). For
fiscal 2021, corporately-managed stores included are those that were not newly opened or permanently closed in
fiscal 2021. For year-over-year comparison purposes, temporarily closed stores in fiscal 2020 were included in
the below table.
Fiscal 2021
Europe
North
America and China Total
43,182
North
America
4,083 $ 47,265 $ (24,256)
Fiscal 2020
Europe
and China Total
$
1,273 $ (22,983)
Net income (loss)
Items excluded:
Income tax expense ..........
Interest (income) expense
Store asset impairment .....
Non-store related general
3,445
(14)
-
and administrative
expense (1) ..................... 57,888
Contribution from other
-
9
-
3,445
(5)
-
2,796
15
5,429
1
(5)
1,917
2,797
10
7,346
4,660 62,548 41,972
2,657 44,629
retail activities (2) ............
Other contribution (3) .........
(17,493)
(3,245)
Store contribution .................... $ 83,763 $
(10,632)
(18,026)
(533)
(235)
(1,247)
(3,480)
7,984 $ 91,747 $ 14,077
$
(4,126)
(47)
(14,758)
(1,294)
1,670 $ 15,747
Total revenues from external
customers ............................. $ 361,605 $ 49,917 $ 411,522 $ 216,809
Items excluded:
$ 38,501 $ 255,310
Revenues from other retail
activities (2) .....................
(61,784)
396
(61,388)
(43,951)
(19,154)
(63,105)
Other revenues from
external customers (4) ....
(5,644)
Store location net retail sales .. $ 287,219 $ 49,083 $ 336,302 $ 167,214
Store contribution as a
(13,832)
(12,602)
(1,230)
(456)
(6,100)
$ 18,891 $ 186,105
percentage of store location
net retail sales ......................
Total net income (loss) as a
29.2%
16.3%
27.3%
8.4%
8.8%
8.5%
percentage of total revenues
11.9%
8.2%
11.5%
(11.2%)
3.3%
(9.0%)
(1) Non-store related general and administrative expense consists primarily of non-store related expenses such
as overhead management compensation, travel, information systems, accounting, purchasing and legal
costs. Additionally, non-store related depreciation and amortization, store closing and pre-opening
expenses are included within non-store related general and administrative expense. Further, non-store
related general and administrative expenses include marketing costs, payroll and related benefits expense,
but exclude advertising expenses, which are included in store contribution.
(2) Other retail activities are comprised primarily of our e-commerce sites, stores not open for the full year and
adjustments to deferred revenue for breakage related to our loyalty program and gift cards.
(3) Other contribution includes commercial revenue, international franchising and intercompany revenues as
well as all expenses attributable to the commercial and international franchising segments, excluding
interest expense (income) and income tax expense (benefit).
(4) Other revenues from external customers are comprised of commercial revenue and international
franchising.
27
Liquidity and Capital Resources
Our cash requirements are primarily for the opening, remodeling or reformatting of stores, installation and
upgrades of information systems and working capital. Over the past several years, we have met these
requirements through cash generated from operations.
Fiscal year ended
January 29,
2022
January 30,
2021
Net cash provided by operating activities ...................................... $
Net cash used in investing activities ..............................................
Net cash used in financing activities ..............................................
Effect of exchange rates on cash ..................................................
Net change in cash, cash equivalents and restricted cash ..... $
28,077 $
(8,130 )
(22,456 )
514
(1,995 ) $
13,386
(5,046 )
(114 )
(112 )
8,114
Operating Activities. Cash flows provided by operating activities were $28.1 million and $13.4 million in fiscal
years 2021 and 2020, respectively. Cash flows from operating activities increased in fiscal 2021 as compared to
fiscal 2020 primarily driven by increased retail store operating days at corporately-managed stores and sales
volume to commercial customers, both due to the reduced impact of COVID in fiscal 2021, resulting in higher net
income. This was offset by an increase in cash spent on inventory purchases throughout the year to match
increased revenue growth as well as accelerated purchases made in the fourth quarter of fiscal 2021 of core and
evergreen merchandise collections to support our business momentum and as part of our efforts to mitigate
inflationary and supply chain COVID-related pressures and anticipated continued increases in product and freight
costs.
Investing Activities. Cash flows used in investing activities were $8.1 million and $5.0 million in fiscal
years 2021 and 2020, respectively. Cash used in investing activities in fiscal 2021 increased as compared to
fiscal 2020 primarily driven by reductions in planned capital expenditures in fiscal 2020 as a result of COVID cash
management initiatives.
Financing Activities. Financing activities used cash of $22.5 million in fiscal 2021 compared to $0.1 million in
fiscal 2020. Cash used in financing activities in fiscal 2021 increased as compared to fiscal 2020, driven primarily
by the payment of a special cash dividend of $19.9 million and repurchases of our common stock for $4.4 million,
offset by proceeds from stock option exercises.
Capital Resources. As of January 29, 2022, we had a cash balance of $32.8 million, of which 69% was
domiciled within the U.S.
On December 17, 2021, we entered into a First Amendment to Revolving Credit and Security Agreement
with PNC Bank, National Association, as agent. The First Amendment amended the Revolving Credit and Security
Agreement dated as of August 25, 2020. The Credit Agreement continues to provide for a senior secured revolving
loan in aggregate principal amount of up to $25,000,000, which may be increased by an amount not to exceed
$25,000,000. The borrowing base under the Credit Agreement continues to be based on specified percentages
of Eligible Credit Card Receivables, Eligible Inventory and, under certain circumstances, Eligible Foreign In-Transit
Inventory and, at the discretion of the Agent, Eligible Receivables. The First Amendment eliminated certain
eligibility requirements for Eligible Foreign In-Transit Inventory and Eligible Inventory. The Credit Agreement
continues to provide for swingline loans of up to $5,000,000 and the issuance of standby or commercial letters of
credit of up to $5,000,000.
The First Amendment (i) extended the maturity date of the Credit Agreement to December 17, 2026, (ii)
eliminated the minimum interest payment requirement, (iii) reduced the facility fee related to undrawn availability,
(iv) reduced the availability requirement under the financial covenant, (v) provided the Company with additional
flexibility to make permitted investments, declare dividends, repay intercompany loans or repurchase its stock,
(vi) increased the threshold amounts for certain events of default, and (vii) reduced the required frequency of
various information and reporting requirements under certain circumstances.
28
Borrowings under the Credit Agreement continue to bear interest (a) at a base rate determined under the
Credit Agreement, or (b) at the Borrower’s option, at a rate based on LIBOR, plus in either case a margin based
on average undrawn availability as determined in accordance with the Credit Agreement, but the First Amendment
reduced such rates and reduced the LIBOR floor. A $500,000 minimum interest payment requirement has been
eliminated and the Facility Fee Percentage, which previously was either 0.50% or 0.375% depending on the
Average Undrawn Availability, was reduced to 0.25%.
The First Amendment revised a covenant to require us to maintain availability (as determined in accordance
with the Credit Agreement) at all times equal to or greater than the greater of (a) 10.0% of the Loan Cap and (b)
$1,875,000 (subject to increase upon exercise of the Increase Option). The “Loan Cap” is the lesser of (1)
$25,000,000 less the outstanding amount of loans and letters of credit under the Credit Agreement and (2) the
borrowing base from time to time under the Credit Agreement.
At the closing date of the First Amendment, we had a $750,000 letter of credit issued and no outstanding
indebtedness under the Credit Agreement; and, we were in compliance with the Credit Agreement covenants. As
of January 29, 2022, the Company had a borrowing base of $22.3 million. As a result of a $750,000 letter of credit
against the line of credit at the end of fiscal 2021, approximately $22.5 million was available for borrowing. As of
January 29, 2022, the Company had no outstanding borrowings.
We ended fiscal 2021 with $32.8 million in cash, cash equivalents and restricted cash after investing $8.1
million in capital projects throughout the year.
As of January 29, 2022, we have utilized $4.4 million in cash to repurchase 245,554 shares under our $25.0
million program that was authorized by our Board of Directors on November 30, 2021. As of April 11, 2022, we
have utilized a total of $12.1 million under the program to purchase 716,760 shares and currently have $12.9
million available under the authorization.
During the fourth quarter of fiscal 2021, we made a $19.9 million special dividend payment to shareholders.
The fiscal 2021 ending cash balance also reflected increased investment in working capital.
As of January 29, 2022, we had restricted cash of $1.0 million compared to $1.7 million as of January 30,
2021. The decrease in long-term deposits is the result of a reduction to our required deposit with the U.K. Customs
Authority.
During fiscal 2020, we renegotiated a large portion of our store lease portfolio resulting in a combination of
rent reductions, deferments, and abatements in North America, the U.K. and Ireland. These prior year negotiations
and new leases, extensions, and modification in fiscal 2021 have increased the percentage of leases with variable
rent structures resulting in the increase in variable rent expense in fiscal 2021 compared to fiscal 2020.
Most of our retail stores are located within shopping malls and all are operated under leases classified as
operating leases. Our leases in North America have shifted to shorter term leases to provide flexibility in aligning
stores with market trends. Our leases typically require us to pay personal property taxes, our pro rata share of
real property taxes of the shopping mall, our own utilities, repairs and maintenance in our store, a pro rata share
of the malls’ common area maintenance and, in some instances, merchant association fees and media fund
contributions. Many leases contain incentives to help defray the cost of construction of a new store. Typically, a
portion of the incentive must be repaid to the landlord if we choose to terminate the lease prior to its contracted
term. In addition, some of these leases contain various restrictions relating to change in control of our company.
Our leases also subject us to risks relating to compliance with changing mall rules and the exercise of discretion
by our landlords on various matters, including rights of termination in some cases. Rents are invoiced monthly
and paid in advance.
Our leases in the U.K. and Ireland typically have terms of ten years and generally contain a provision
whereby every fifth year the rental rate can be adjusted to reflect the current market rates. The leases typically
provide the lessee with the first right for renewal at the end of the lease. We may also be required to make deposits
and rent guarantees to secure new leases as we expand. Real estate taxes also change according to government
time schedules to reflect current market rental rates for the locations we lease. Rents are invoiced monthly or
quarterly and paid in advance.
29
Capital spending in fiscal 2021 totaled $8.1 million and was primarily used to support our ongoing
omnichannel strategy and digital initiatives.
We have various contractual or other obligations, including operating lease commitments and obligations
under deferred compensation plans. Additional information is provided in the notes to our consolidated financial
statements. As of January 29, 2022, we had purchase obligations totaling approximately $99.9 million, of which
$25.7 million are due in the next 12 months. We believe our operating cash flows are sufficient to meet our material
cash requirements for at least the next 12 months.
We have no off-balance sheet arrangements as of January 29, 2022.
Inflation
The impact of inflation on the Company's business operations was seen throughout fiscal 2021 and began
to have an adverse impact on our business in the fourth quarter of the year, mainly in freight and other supply
chain related costs. However, due to mitigating actions taken by the Company, such as strategic price increases
on highly sought-after products and accelerated purchases of inventory, the impact of general price inflation on
our 2021 financial position and results of operations has not been significant. We expect the inflationary pressures
experienced at the end of fiscal 2021 to continue into fiscal 2022. We continue to monitor the impact of inflation
on our business operations on an ongoing basis and may need to adjust our prices further to mitigate the impacts
of changes to the rate of inflation during 2022 or in future years. Future volatility of general price inflation and the
impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational
overhead could adversely affect our financial results. Inflationary pressures may be exacerbated by higher
transportation costs due to ware and other geopolitical conflicts, such as the current Russia-Ukraine crisis. We
cannot provide an estimate or range of impact that such inflations may have our future results of operations.
However, if we are unable to recover the impact of these costs through price increases to our customers, or if
consumer spending decreases as a result of inflation, our business, results of operations, financial condition and
cash flows may be adversely affected. In addition, ongoing inflation in product costs may result in lower gross
margins due to a requirement to maintain higher inventory reserves.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires
the appropriate application of certain accounting policies, which require us to make estimates and assumptions
about future events and their impact on amounts reported in our financial statements and related notes. Since
future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our
estimates. Such differences could be material to the financial statements.
We believe application of accounting policies, and the estimates inherently required therein, are reasonable.
These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and
circumstances dictate a change. Historically, we have found our application of accounting policies to be
appropriate, and actual results have not differed materially from those determined using necessary estimates.
Our accounting policies are more fully described in Note 2 to our consolidated financial statements, which
appear elsewhere in this Annual Report on Form 10-K. We have identified the following critical accounting
estimates:
Long-Lived Asset Impairments
In accordance with ASC 360-10-35, we assess the potential impairment of long-lived assets, which include
property, plant and equipment and operating lease right-of-use assets (subsequent to the adoption of ASC 842,
Leases) when events or changes in circumstances indicate that the carrying value may not be recoverable.
Management's judgments regarding the existence of impairment indicators are based on market conditions and
financial performance. Recoverability is measured by comparing the carrying amount of an asset, or asset group,
to expected future net cash flows generated by the asset, or asset group. If the carrying amount exceeds its
estimated undiscounted future cash flows, the carrying amount is compared to its fair value and an impairment
charge is recognized to the extent of the difference. For operating lease right-of-use assets, we determine the fair
value of the lease right-of-use assets by comparing the contractual rent payments to estimated market rental
rates. Fair value is calculated as the present value of estimated future cash flows for each asset group.
30
For purposes of evaluating store assets for impairment, we have determined that each store location is an
asset group, inclusive of the right-of-use asset attributable to each store. Factors that we consider important which
could individually or in combination trigger an impairment review include, but are not limited to, the following:
(1) significant underperformance relative to historical or projected future operating results; (2) significant changes
in the manner of our use of the acquired assets or the strategy for our overall business; and (3) significant changes
in our business strategies and/or negative industry or economic trends. We assess events and changes in
circumstances or strategy that could potentially indicate that the carrying value of long-lived assets may not be
recoverable as they occur. Due to the significance of the fourth quarter to individual store locations, we assess
store performance quarterly, using rolling twelve-month results (i.e. full fiscal year). We consider a historical and/or
projected negative cash flow trend for a store location to be an indicator that the carrying value of that asset group
may not be recoverable. Impairment charges related to this assessment are typically included in Store asset
impairment as a component of income (loss) before income taxes in the DTC segment. See Note 4 - Leases and
Note 6 - Property and Equipment, Net to our consolidated financial statements for further discussion.
During fiscal 2021, we did not record any impairment charges. In fiscal 2020, we recorded impairment
charges on long-live assets totaling $7.3 million, $3.5 million for property and equipment and $3.8 million for right-
of-use lease assets. As a measure of sensitivity for fiscal 2021, a hypothetical 10% decrease in the undiscounted
future cash flows for the stores would not have resulted in impairments for the year.
Additionally, we consider a more likely than not assessment that an individual location will close prior to the
end of its lease term as a triggering event to review the store asset group for recoverability. These assessments
are reviewed on a quarterly basis. When indicated, the carrying value of the assets is reduced to fair value,
calculated as the estimated future cash flows for each asset group.
In the event that we decide to close any or all of these stores in the future, we may be required to record
additional impairments, lease termination fees, severance and other charges. Impairment losses in the future are
dependent on a number of factors such as site selection, general economic trends, public health issues (such as
the COVID pandemic) and thus could be significantly different than historical results. The assumptions used in
future calculations of fair value may change significantly which could result in further impairment charges in future
periods.
Revenue Recognition
For our gift cards, revenue is deferred for single transactions until redemption including any related gift card
discounts. Three-quarters of our gift cards are redeemed within three years of issuance and over the last three
years, approximately 60% of gift cards issued have been redeemed within the first twelve months. In addition,
unredeemed gift cards or breakage revenue is recorded in proportion to the customer’s redemption pattern using
an estimated breakage rate based on historical experience. The Company utilizes historical redemption data to
develop a model to analyze the amount of breakage expected for gift cards sold to customers and business
partners. The Company reviews historical gift card redemption information and considers any changes in
redemption patterns as a result of the current economic environment, to assess the reasonableness of projected
gift card breakage rates and patterns of redemption. The Company continues to evaluate expected breakage
annually and adjusts the breakage rates in the fourth quarter of each year, or other times, if significant changes
in customer behavior are detected. Future gift card usage may be different than our historical experience and as
a result our estimate of cards not expected to be redeemed is subject to inherent uncertainty. If actual redemption
activity differs significantly from our historical experience, our gift card liability and results of operations could be
materially impacted, given the significant dollar value of gift cards outstanding. As a matter of sensitivity, a
hypothetical 1% change in our gift card breakage rate in fiscal 2021 would have resulted in a change in breakage
revenue of $1.3 million.
For certain qualifying transactions, a portion of revenue transactions are deferred for the obligation related
to our loyalty program or when a material right in the form of a future discount is granted. In these transactions,
the transaction price is allocated to the separate performance obligations based on the relative standalone selling
price. The standalone selling price for the points earned for our loyalty program is estimated using the net retail
value of the merchandise purchased, adjusted for estimated breakage based on historical redemption patterns.
The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned
to the points is deferred until the points are redeemed, forfeited or expired. In regard to the consolidated balance
sheet, contract liabilities for gift cards are classified as gift cards and customer deposits, and contract liabilities
related to the loyalty program are classified as deferred revenue and other.
31
See Note 3 - Revenue for additional information.
Leases
We determine if an arrangement is a lease at inception. The right-of-use assets and liabilities are recognized
at the commencement date based on the present value of lease payments using a discounted cash flow analysis,
considering lease terms and our internal borrowing rate, over the lease term for those arrangements where there
is an identified asset and the contract conveys the right to control its use. Our lease term includes options to
extend or terminate a lease only when it is reasonably certain that we will exercise that option.
The majority of our leases do not provide an implicit rate and therefore, we estimate the incremental
borrowing discount rate based on information available at lease commencement. The discount rates used are
indicative of a synthetic credit rating based on quantitative and qualitative analysis and adjusted one notch higher
to estimate a secured credit rating. For non-U.S. locations, a risk-free rate yield based on the currency of the lease
is used to estimate the incremental borrowing rate. The weighted average risk-free rates were based on the
Treasury BVAL rates curve in Bloomberg. Rates were developed for length of lease term for each year 1 through
10 and for 12, 15, 20, 25, and 30-year terms.
Income Taxes
We recognize deferred tax assets resulting from tax credit carryforwards and deductible temporary
differences between taxable income on our income tax returns and income before taxes under GAAP. Deferred
tax assets generally represent future tax benefits to be received when these carryforwards can be applied against
future taxable income or when expenses previously reported in our consolidated financial statements become
deductible for income tax purposes. A deferred tax asset valuation allowance is required when some portion or
all of the deferred tax assets may not be realized. We consider the weight of all available evidence, both positive
and negative, in assessing the realizability of the deferred tax assets by each taxing jurisdiction. We consider the
Company’s ability to carry back its tax losses or credits for refunds, the availability of tax planning strategies and
reversals of existing taxable temporary differences as well as projections of future taxable income. In the fourth
quarter of fiscal 2021, we performed an analysis of all available positive and negative evidence. As we were no
longer in a cumulative loss in North America for the three-year period ending January 29, 2022 driven by the
record pretax performance of fiscal 2021 and with the expectation that this strong financial performance will
continue given our recent strategic initiatives coupled with the fact that almost all available tax attribute
carryforwards were utilized in North American in fiscal 2021, the Company recorded a benefit of $7.8 million for
the reversal of the beginning-of-the-year valuation allowance in North America. As we had incurred a cumulative
book loss in the U.K. over the three-year period ended February 2, 2019, we evaluated the realizability of our UK
deferred tax assets and, accordingly, in the fourth quarter of fiscal 2018, the Company recorded a $3.7 million
valuation allowance on its U.K. deferred tax assets, and remains in a full valuation allowance, as the U.K.
continues to be in a three year cumulative loss.
Significant judgment is required in evaluating our uncertain tax positions. We establish accruals for uncertain
tax positions when we believe that the full amount of the associated tax benefit may not be realized. In the future,
if we prevail in matters for which accruals have been established previously or pay amounts in excess of reserves,
there could be an effect on our income tax provisions in the period in which such determination is made. Tax
authorities regularly examine the Company’s returns in the jurisdictions in which the Company does business.
Management regularly assesses the tax risk of the company’s return filing positions and believes its accruals for
uncertain tax benefits are adequate as of January 29, 2022 and January 30, 2021.
Recent Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies for additional information.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules are listed under Item 15(a)(1) and filed as part of this Annual Report on
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
33
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our President and Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)),
as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure
that information we are required to disclose in the reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is
accumulated and communicated to management, including our certifying officers, as appropriate to allow timely
decisions regarding required disclosure. Based on the foregoing evaluation, our management, including the
President and Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and
procedures were effective as of January 29, 2022, the end of the period covered by this Annual Report.
It should be noted that our management, including the President and Chief Executive Officer and the Chief
Financial Officer, does not expect that our disclosure controls and procedures or internal controls will prevent all
error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can
occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of the controls. The design of any
system of controls is based in part upon certain assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Under the supervision and with
the participation of our management, including the President and Chief Executive Officer and the Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of
January 29, 2022. Our management, with the participation of our President and Chief Executive Officer and our
Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine
whether any changes occurred during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting. All internal control systems have
inherent limitations, including the possibility of circumvention and overriding the control. Accordingly, even
effective internal control can provide only reasonable assurance as to the reliability of financial statement
preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control may
vary over time.
In making its evaluation, our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 framework). Based
upon this evaluation, our management has concluded that our internal control over financial reporting as
of January 29, 2022 is effective.
Changes in Internal Control over Financial Reporting
During fiscal 2021, the Company implemented new processes and internal controls around inventory cycle
count procedures at our Company-owned warehouse in Ohio. This resulted in inventory counting procedures at
the warehouse being completed on a daily or weekly basis compared to the historical full physical inventory count
completed one time a year. The Company cycle counted all inventory locations at its warehouse once per quarter
during the fiscal year and assessed the completeness and accuracy of those counts on a monthly basis. There
has been no other change in our internal control over financial reporting during the year covered by this report
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
34
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Build-A-Bear Workshop, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Build-A-Bear Workshop Inc. and Subsidiaries’ internal control over financial reporting as of
January 29, 2022, based on criteria established in Internal Control— Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). In
our opinion, Build-A-Bear Workshop, Inc. and Subsidiaries (collectively, the Company) maintained, in all material
respects, effective internal control over financial reporting as of January 29, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of Build-A-Bear Workshop, Inc. and Subsidiaries as
of January 29, 2022 and January 30, 2021, the related consolidated statements of operations and comprehensive
income (loss), stockholders' equity and cash flows for each of the two years in the period ended January 29, 2022,
and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) and our report dated
April 14, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ Ernst & Young LLP
St. Louis, Missouri
April 14, 2022
35
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning directors, appearing in the sections titled “Directors,” “The Board of Directors and
its Committees,” and “Committee Charters, Corporate Governance Guidelines, Business Conduct Policy and
Code of Ethics” in our Proxy Statement (the “Proxy Statement”) to be filed with the SEC in connection with our
Annual Meeting of Stockholders scheduled to be held on June 9, 2022, is incorporated by reference in response
to this Item 10.
Business Conduct Policy
The Board of Directors has adopted a Business Conduct Policy applicable to our directors, officers and
employees, including all executive officers. The Business Conduct Policy has been posted in the Investor
Relations section of our corporate website at http://ir.buildabear.com. We intend to satisfy the amendment and
waiver disclosure requirements under applicable securities regulations by posting any amendments of, or waivers
to, the Business Conduct Policy on our website.
The information appearing in the section titled “Committee Charters, Corporate Governance Guidelines,
Business Conduct Policy and Code of Ethics” in the Proxy Statement is incorporated by reference in response to
this Item 10.
Executive Officers and Key Employees
Sharon Price John, 58, was appointed to the Board of Directors on June 3, 2013, in connection with her
employment as Chief Executive Officer and Chief President Bear of the Company. Effective March 2016, she now
holds the title of President and Chief Executive Officer. From January 2010 through May 2013, Ms. John served
as President of Stride Rite Children’s Group LLC, a division of Wolverine Worldwide, Inc., which designs and
markets footwear for children. From 2002 through 2009, she held positions of broadened portfolio and increased
responsibility at Hasbro, Inc., a multinational toy and board game company, including as General Manager &
Senior Vice President of its U.S. Toy Division from 2006 to 2008 and General Manager & Senior Vice President
of its Global Preschool unit from June 2008 through 2009. Ms. John also founded and served as Chief Executive
Officer of Checkerboard Toys, served as Vice President, U.S. Toy Division with VTech Industries, Inc., and served
in a range of roles at Mattel, Inc. She started her career in advertising, overseeing accounts such as Hershey’s
and the Snickers/M&M Mars business. Ms. John serves on the Board of Directors of Jack in the Box Inc., a publicly
traded restaurant company.
Eric Fencl, 59, joined Build-A-Bear Workshop in July 2008 as Chief Bearrister—General Counsel. Effective
October 2015, Mr. Fencl now holds the title of Chief Administrative Officer, General Counsel and Secretary. Prior
to joining the Company, Mr. Fencl was Executive Vice President, General Counsel and Secretary for Outsourcing
Solutions Inc., a national accounts receivable management firm from August 1998 to June 2008. From September
1990 to August 1998, Mr. Fencl held legal positions at Monsanto Company, McDonnell Douglas Corporation and
Bryan Cave Leighton Paisner LLP (formerly known as Bryan Cave LLP). Mr. Fencl began his career as an auditor
with Arthur Young & Company.
J. Christopher Hurt, 56, joined Build-A-Bear Workshop in April 2015 as Chief Operations Officer. Effective June
2020, he now holds the title of Chief Operations and Experience Officer. Prior to joining the Company, Mr. Hurt
was at American Eagle Outfitters, Inc. from 2002 to April 2015 in various senior leadership roles of increasing
responsibility, including Senior Vice President, North America and Vice President/General Manager—Factory,
Canada, Mexico Retail from 2011 to April 2015, and East Zone Vice President and Regional Director from 2002
to 2011. Before joining American Eagle Outfitters, Mr. Hurt held positions of increasing responsibility at companies
including Polo Ralph Lauren and The Procter & Gamble Company.
36
Jennifer Kretchmar, 49, joined Build-A-Bear Workshop in August 2014 as Chief Product Officer and Innovation
Bear. In March 2016, she became Chief Merchandising Officer and, effective June 2020, she now holds the title
of Chief Digital and Merchandising Officer. Ms. Kretchmar serves on the Board of Directors of Mace Security
International, Inc., a publicly traded personal security company. Prior to joining the Company, Ms. Kretchmar was
Senior Vice President of Product and Brand Management with the Stride Rite Children’s Group of Wolverine
Worldwide, Inc. where since 2004 she was responsible for the global product creation strategy for a diverse
portfolio of children’s footwear brands, including Stride Rite, Sperry Top- Sider®, Saucony®, Keds®, Merrell®,
Robeez®, Jessica Simpson® and Hush Puppies®. Before joining Stride Rite, Ms. Kretchmar held positions of
increasing responsibility at The Timberland Company, Goldbug, and the United States Department of Agriculture
Foreign Service.
Voin Todorovic, 47, joined Build-A-Bear Workshop in September 2014 as Chief Financial Officer. Prior to joining
the Company, Mr. Todorovic was employed at Wolverine Worldwide, Inc., a leading global footwear and apparel
company, where since September 2013 Mr. Todorovic served as the head of finance and operations for its
Lifestyle Group, which includes a portfolio of iconic brands such as Sperry Top-Sider®, Hush Puppies®, Keds®,
and Stride Rite®. From 2011 to 2013 Mr. Todorovic was Vice President—Finance and Administration of the Stride
Rite Children’s Group business, operating in wholesale, direct to consumer and international franchising, and from
2010 to 2011 Mr. Todorovic was Vice President of the Performance + Lifestyle Group. Prior to his tenure at
Wolverine World Wide he held positions of increasing responsibility at Collective Brands, Inc. and Payless
ShoeSource.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the sections titled “Executive Compensation” and “Board of Directors
Compensation” in the Proxy Statement is incorporated herein by reference in response to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information contained in the section titled “Security Ownership of Certain Beneficial Owners and
Management” in the Proxy Statement is incorporated herein by reference in response to this Item 12.
Equity Compensation Plan Information
(c)
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
416,391
416,391
(a)
Number of
securities to
be issued
upon exercise
of outstanding
options,
warrants and
rights
(b)
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
318,569 $
318,569 $
13.23
13.23
Plan category
Equity compensation plans approved by security holders .....
Total .......................................................................................
37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information contained in the section titled “Related Party Transactions” in the Proxy Statement is
incorporated herein by reference in response to this Item 13.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information contained in the sections titled “Principal Accountant Fees” and “Policy Regarding Pre-
Approval of Services Provided by the Independent Registered Public Accounting Firm” in the Proxy Statement is
incorporated herein by reference in response to Item 14.
38
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
PART IV
The financial statements and schedules set forth below are filed on the indicated pages as part of this Annual
Report on Form 10-K.
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) ............................................
Consolidated Balance Sheets as of January 29, 2022 and January 30, 2021 .........................................
Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal years
Page
40
42
ended January 29, 2022 and January 30, 2021 ....................................................................................
43
Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 29, 2022 and
January 30, 2021 ...................................................................................................................................
44
Consolidated Statements of Cash Flows for the fiscal years ended January 29, 2022 and
January 30, 2021 ...................................................................................................................................
Notes to Consolidated Financial Statements .............................................................................................
Schedule II - Valuation and Qualifying Accounts .......................................................................................
45
46
65
39
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Build-A-Bear Workshop, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Build-A-Bear Workshop, Inc. and
Subsidiaries (collectively, the Company) as of January 29, 2022 and January 30, 2021, the related consolidated
statements of operations and comprehensive income (loss), stockholders' equity and cash flows for each of the
two years in the period ended January 29, 2022, and the related notes and the financial statement schedule listed
in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at
January 29, 2022 and January 30, 2021, and the results of its operations and its cash flows for each of the two
years in the period ended January 29, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of January 29, 2022, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 Framework) and our report dated April 14, 2022 expressed an
unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates
to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Revenue recognition - gift card breakage
Description of the Matter As described in Note 3, for the Company’s gift cards, revenue is deferred for single
transactions until redemption. The unredeemed gift cards or breakage revenue is
recorded in proportion to the customer’s redemption pattern using an estimated
breakage rate based on historical experience. For the year ended January 29, 2022,
net retail sales included gift card breakage revenue of $6.5 million.
40
Auditing the Company’s breakage revenue related to unredeemed gift cards was
complex and judgmental due to the complexity of the model and the subjectivity
related to the judgments that are made by the Company to estimate the breakage
rate. Further, given the magnitude of the Company's gift card liability, changes in
breakage rates have a significant impact on the amount of breakage revenue
recognized.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls over management’s determination of gift card breakage
revenue, including the model and data inputs used in the model, as well as significant
underlying assumptions selected by management in establishing the breakage rates.
We performed audit procedures that included, among others, evaluating the
methodologies, assessing the judgments and testing the completeness and accuracy
of the historical data used by the Company in its determination of the breakage rate.
In addition, we performed sensitivity analyses over the breakage rate to evaluate the
impact changes in breakage rates had on breakage revenue recorded.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2011.
St. Louis, Missouri
April 14, 2022
41
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
January 29, January 30,
2022
2021
ASSETS
Current assets:
Cash, cash equivalents and restricted cash ................................................. $
Inventories, net .............................................................................................
Receivables, net ...........................................................................................
Prepaid expenses and other current assets .................................................
Total current assets .........................................................................
Operating lease right-of-use asset ......................................................................
Property and equipment, net ...............................................................................
Deferred tax assets .............................................................................................
Other assets, net .................................................................................................
Total Assets ......................................................................................................... $
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................................... $
Accrued expenses ........................................................................................
Operating lease liability short term ...............................................................
Gift cards and customer deposits .................................................................
Deferred revenue and other ..........................................................................
Total current liabilities ......................................................................
Operating lease liability long term .......................................................................
Deferred franchise revenue .................................................................................
Other liabilities .....................................................................................................
32,845 $
71,809
11,701
13,643
129,998
77,671
48,966
7,613
2,076
266,324 $
21,849 $
25,543
25,245
20,937
3,808
97,382
73,307
734
1,218
34,840
46,947
8,295
10,111
100,193
104,825
52,973
-
3,381
261,372
17,901
17,551
32,402
19,029
2,445
89,328
101,462
920
2,354
Stockholders' equity:
Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares
issued or outstanding at January 29, 2022 and January 30, 2021 ..................
-
-
Common stock, par value $0.01, Shares authorized: 50,000,000; Issued and
outstanding: 16,146,332 and 15,930,958 shares, respectively .......................
Additional paid-in capital ...............................................................................
Accumulated other comprehensive loss .......................................................
Retained earnings .........................................................................................
Total stockholders' equity ................................................................
Total Liabilities and Stockholders' Equity ............................................................ $
162
75,490
(12,470)
30,501
93,683
266,324 $
159
72,822
(12,615)
6,942
67,308
261,372
See accompanying notes to consolidated financial statements.
42
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands, except share and per share data)
Fiscal year ended
January 29, January 30,
2022
2021
Revenues:
Net retail sales .............................................................................................. $
Commercial revenue .....................................................................................
International franchising ................................................................................
Total revenues .................................................................................
397,690 $
11,505
2,327
411,522
249,210
4,426
1,674
255,310
Costs and expenses:
Cost of merchandise sold - retail ..................................................................
Store asset impairment .................................................................................
Cost of merchandise sold - commercial .......................................................
Cost of merchandise sold - international franchising ....................................
Total cost of merchandise sold ........................................................
Consolidated gross profit .....................................................................................
Selling, general and administrative expense ................................................
Interest (income) expense, net .....................................................................
Income (loss) before income taxes ..................................................
Income tax expense ............................................................................................
Net income (loss) ............................................................................. $
186,382
5,648
1,537
193,567
217,955
167,250
(5)
50,710
3,445
47,265 $
147,783
7,346
1,837
935
157,901
97,409
117,585
10
(20,186)
2,797
(22,983)
Foreign currency translation adjustment ......................................................
Comprehensive income (loss) ............................................................................. $
145
47,410 $
(601)
(23,584)
Income (loss) per common share:
Basic ............................................................................................................. $
Diluted ........................................................................................................... $
3.06 $
2.93 $
(1.54)
(1.54)
Shares used in computing common per share amounts:
Basic ............................................................................................................. 15,460,634 14,923,304
Diluted ........................................................................................................... 16,122,583 14,923,304
See accompanying notes to consolidated financial statements.
43
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Additional
Accumulated
other
Common paid-in
capital
stock
comprehensive Retained
income (loss) earnings Total
Balance, February 1, 2020 ............................ $
152 $ 70,633 $
(12,079) $ 29,925 $ 88,631
Stock-based compensation expense ............
Shares issued under employee stock plans ..
Shares withheld in lieu of tax withholdings ....
Other comprehensive loss .............................
Net loss ..........................................................
-
8
(1)
-
-
1,811
491
(113)
-
-
-
-
-
(536)
-
-
-
-
-
(22,983)
1,811
499
(114)
(536)
(22,983)
Balance, January 30, 2021 ............................ $
159 $ 72,822 $
(12,615) $
6,942 $ 67,308
Stock-based compensation expense ............
Shares issued under employee stock plans ..
Shares withheld in lieu of tax withholdings ....
Repurchase of Company stock .....................
Cash dividends ..............................................
Other comprehensive income .......................
Net income ....................................................
-
7
(2)
(2)
-
-
-
1,691
3,866
(1,757)
(1,132)
-
-
-
-
-
-
-
-
145
-
-
-
-
(3,224)
(20,482)
-
47,265
1,691
3,873
(1,759)
(4,358)
(20,482)
145
47,265
Balance, January 29, 2022 ............................ $
162 $ 75,490 $
(12,470) $ 30,501 $ 93,683
See accompanying notes to consolidated financial statements.
44
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Fiscal year ended
January 29, January 30,
2022
2021
Cash flows provided by operating activities:
Net income (loss) .......................................................................................... $
47,265 $
(22,983)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ...............................................................
Share-based and performance-based stock compensation expense ....
Impairment of right-of-use assets and fixed assets ...............................
Deferred taxes ........................................................................................
Provision/adjustments for doubtful accounts ..........................................
Loss on disposal of property and equipment .........................................
Change in assets and liabilities:
Inventories, net ................................................................................
Receivables, net ..............................................................................
Prepaid expenses and other assets ................................................
Accounts payable and accrued expenses .......................................
Operating leases ..............................................................................
Gift cards and customer deposits ....................................................
Deferred revenue .............................................................................
Net cash provided by operating activities..................................
12,276
2,631
-
(7,613)
(297)
97
(25,126)
(3,233)
(2,579)
9,561
(8,193)
1,917
1,371
28,077
Cash flows used in investing activities:
Capital expenditures .....................................................................................
Net cash used in investing activities .........................................
(8,130)
(8,130)
Cash flows used in financing activities:
Proceeds from exercise of employee stock options .....................................
Purchases of common stock for retirement ..................................................
Cash dividends paid .....................................................................................
Net cash used in financing activities .........................................
Effect of exchange rates on cash ........................................................................
Net change in cash, cash equivalents and restricted cash .................................
Cash, cash equivalents and restricted cash, beginning of period .......................
Cash, cash equivalents and restricted cash, end of period ................................ $
1,835
(4,358)
(19,933)
(22,456)
514
(1,995)
34,840
32,845 $
13,292
1,525
7,346
3,388
538
262
6,785
2,747
(2,063)
4,028
201
(1,209)
(471)
13,386
(5,046)
(5,046)
(114)
-
-
(114)
(112)
8,114
26,726
34,840
Reconciliation of cash, cash equivalents and restricted cash (1)
Cash and cash equivalents .............................................................................. $
Restricted cash from long-term deposits .........................................................
Total cash, cash equivalents and restricted cash ......................................... $
31,808 $
1,037
32,845 $
33,142
1,698
34,840
Net cash paid (received) during the period for income taxes .......................... $
10,378 $
41
(1) See cash, cash equivalents and restricted cash in Note 2 - Summary of Significant Accounting Policies for
further discussion.
See accompanying notes to consolidated financial statements.
45
Notes to Consolidated Financial Statements
(1) Description of Business and Basis of Preparation
Build-A-Bear Workshop, Inc. and subsidiaries (collectively, the “Company”) is a multi-channel retailer of
plush animals and related products. The Company began operations in October 1997. The Company sells its
products through its 346 corporately-managed locations operated primarily in leased mall locations in the U.S.,
Canada, Ireland, and the U.K. along with its e-commerce sites. With the closure of its one corporately-managed
location in China in May 2021, as of the balance sheet date, operations in foreign countries where the Company
does not have corporately-managed locations are through franchise agreements. The Company also sold product
through its "third-party retail" model at 61 stores in which it sells its products on a wholesale basis to other
companies that then in turn execute the Company's retail experience.
The Company’s consolidated financial statements have been prepared in accordance U.S. GAAP. Certain
amounts in prior fiscal periods have been reclassified to conform to current year presentation with no impact to
the consolidated statement of operations and comprehensive income (loss).
(2) Summary of Significant Accounting Policies
For each accounting topic that is addressed in its own note, the description of the accounting policy may be
found in the related note. The Company’s other significant accounting policies applied in the preparation of the
accompanying consolidated financial statements are as follows:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Build-A-Bear Workshop, Inc.
and its wholly-owned subsidiaries. All intercompany accounts are eliminated in consolidation.
Fiscal Year
The Company operates on a 52- or 53-week fiscal year ending on the Saturday closest to January 31. The
periods presented in these financial statements are fiscal 2021 (52 weeks ended January 29, 2022) and
fiscal 2020 (52 weeks ended January 30, 2021). References to years in these financial statements relate to fiscal
years or year ends rather than calendar years.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash and short-term highly liquid investments with an original maturity
of three months or less held in both domestic and foreign financial institutions. In addition, the Company has long-
term deposits at multiple institutions to satisfy contractual terms with one landlord in China and the UK
Customs Authority (unrelated to the matter discussed in Note 10 - Commitments and Contingencies). The
Company also has deposits from franchisees under contractual agreements which are refundable. The long-term
and franchisee deposits are considered restricted cash and disclosed within the supplemental disclosure within
the consolidated statement of cash flows.
The majority of the Company’s cash and cash equivalents exceed federal deposit insurance limits. The
Company has not experienced any losses in such accounts and management believes that the Company is not
exposed to any significant credit risk on cash, cash equivalents, and restricted cash.
Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined on an average-cost
basis. Inventory includes supplies of $4.4 million and $2.8 million as of January 29, 2022 and January 30, 2021,
respectively. A reserve for estimated shortage is accrued throughout the year based on detailed historical
averages. The inventory reserve was $0.9 million and $1.0 million as of January 29, 2022 and January 30, 2021,
respectively.
46
Receivables
Receivables consist primarily of amounts due to the Company in relation to tenant allowances, wholesale
and corporate product sales, franchisee royalties and product sales, certain amounts due from taxing authorities
and licensing revenue. The Company assesses the collectability of all receivables on an ongoing basis by
considering its historical credit loss experience, current economic conditions, and other relevant factors. Based
on this analysis, the Company has established an allowance for doubtful accounts of $7.1 million and $7.4
million as of January 29, 2022 and January 30, 2021, respectively.
Property and Equipment
Property and equipment consist of leasehold improvements, furniture and fixtures, computer equipment and
software, building and land and are stated at cost. Leasehold improvements are depreciated using the straight-
line method over the shorter of the useful life of the assets or the life of the lease ranging from one to ten years.
Furniture and fixtures and computer equipment are depreciated using the straight-line method over the estimated
service lives ranging from three to seven years. Computer software includes certain costs, including internal
payroll costs incurred in connection with the development or acquisition of software for internal use and is
amortized using the straight-line method over a period of three to five years. New store construction deposits are
recorded at the time the deposit is made as construction-in-progress and reclassified to the appropriate property
and equipment category at the time of completion of construction, when operations of the store commence.
Maintenance and repairs are expensed as incurred and improvements are capitalized. Gains or losses on the
disposition of fixed assets are recorded upon disposal.
Leases
The majority of the Company's leases relate to retail stores and corporate offices. For leases with terms
greater than 12 months, the Company records the related asset and obligation at the present value of lease
payments over the term. Most retail store leases have an original term of five to ten-year base period and the
term can be extended on a lease-by-lease basis with additional terms that are typically much shorter than the
original lease term giving the Company lease optionality. The renewal options are not included in the
measurement of the right of use assets and right of use liabilities unless the Company is reasonably certain to
exercise the optional renewal periods. Some leases also include early termination options, which can be
exercised under specific conditions. Additionally, the Company may operate stores for a period of time on a
month-to-month basis after the expiration of the lease term. The Company's lease agreements do not contain
any material residual value guarantees or material restrictive covenants. Additionally, certain leases contain
incentives, such as construction allowances from landlords and/or rent abatements subsequent to taking
possession of the leased property. These incentives reduce the right-of-use asset related to the lease and are
amortized through the right-of-use asset as reductions of expense over the lease term.
The Company's leases typically contain rent escalations over the lease term and the Company recognizes
expense for these leases on a straight-line basis over the lease term. The Company recognizes the related rental
expense on a straight-line basis and records the difference between the recognized rental expense and amounts
payable under the lease as part of the lease right-of-use asset. Some of the Company's leases include rent
escalations based on inflation indexes and fair market value adjustments. Operating lease liabilities are
calculated using the prevailing index or rate at lease commencement. Subsequent escalations in the index or
rate and contingent rental payments are recognized as variable lease expenses. Certain leases contain
contingent rental provisions that include a fixed base rent plus an additional percentage of the store’s sales in
excess of stipulated amounts.
The Company has elected the practical expedient allowed by the standard to account for all fixed
consideration in a lease as a single lease component. Therefore, the lease payments used to measure the lease
liability for these leases include fixed minimum rentals along with fixed operating costs such as common area
maintenance and utilities.
Most of the Company’s leases do not provide a readily available implicit interest rate. Therefore, the
Company estimates the incremental borrowing discount rate based on information available at lease
commencement. The discount rates used are indicative of a synthetic credit rating based on quantitative and
qualitative analysis and adjusted one notch higher to estimate a secured credit rating. For non-U.S. locations, a
47
risk-free rate yield based on the currency of the lease is used to adjust the estimate of the incremental borrowing
rate.
Other Assets, net
Other assets consist primarily of the non-current portion of prepaid income taxes and deferred costs related
to franchise agreements, financing agreements, and capitalized film production costs. Deferred franchise costs
are initial costs related to the Company’s franchise agreements that are deferred and amortized over the life of
the respective franchise agreement. Deferred financing costs are the initial issuance costs and fees incurred in
obtaining the Company's new credit agreement. The Company had no outstanding borrowings at the beginning
of the facility or at of the date of the first amendment, therefore these costs and fees incurred for the original
agreement and amendment were recorded as a deferred asset and the unamortized costs will be amortized over
the length of the amended agreement. Film production costs include capitalizable direct costs, production
overhead, interest and development costs and are stated at the lower of cost, less accumulated amortization, or
fair value.
Long-lived Assets
Whenever facts and circumstances indicate that the carrying value of a long-lived asset (asset group) and
right-of-use operating lease assets may not be recoverable, the carrying value of those assets is reviewed for
potential impairment. If this review indicates that the carrying value of the asset (asset group) will not be recovered,
as determined based on projected undiscounted cash flows related to the asset (asset group) over its remaining
life, the carrying value of the asset (asset group) is reduced to its estimated fair value. The Company typically
performs an annual assessment of its store assets in the DTC segment, based on operating performance and
forecasts of future performance. For the purposes of evaluating store assets for impairment, the Company has
determined that each store location is an asset group, inclusive of the right-of-use asset attributable to each store.
In periods where the Company identifies indicators of impairment for its store fleet, the Company performs a
recoverability test for these assets by comparing the estimated undiscounted future cash flows over the remaining
useful life of the asset (asset group) to the carry value of the asset (asset group). Based on this, the Company
determines if certain stores had long-lived and right-of-use assets with carrying values that exceed their estimated
undiscounted future cash flows for the remaining useful life of the respective assets.
An impairment charge is recognized to the extent the carrying value exceeded the fair value of the asset
(asset group). The Company estimates fair values of these long-lived assets based on its discounted future cash
flow analysis for the remaining useful life of the asset or its market rent assessment. For operating lease assets,
the Company determines the fair value of the assets by comparing the contractual rent payments to estimated
market rental rates. An individual asset within an asset group is not impaired below its estimated fair value. Asset
impairment charges are recorded in Store asset impairment within the Consolidated Statement of Operations and
Comprehensive Income (Loss). The Company's analysis identified no indicators of impairment and the Company
incurred no impairment charges during fiscal 2021 for long-lived assets. The Company recorded total impairment
charges for fiscal 2020 of approximately $7.3 million, with approximately $3.8 million for right-of-use lease assets
and $3.5 million for fixed assets including leasehold improvements and fixtures, furniture and fixtures, machinery
and equipment, and construction-in-progress.
The determination of estimated market rent used in the fair value estimate of the Company’s operating lease
assets included within the respective store asset group requires significant management judgment. Changes in
these estimates could have a significant impact on whether long-lived store assets should be further evaluated for
impairment and could have a significant impact on the resulting impairment charge. The significant estimates, all
of which are considered Level 3 inputs, used in the fair value methodology include: the Company’s expectations
for future operations and projected cash flows, including revenues, operating expenses including market rents,
and market conditions.
Entertainment Production Costs
Costs of producing entertainment assets, which include direct costs, production overhead and development
costs, are capitalized when incurred and are stated at the lower of cost, less accumulated amortization, or fair
value. For film related costs, the Company expects assets to be monetized individually and are amortized using
the individual film-forecast-computation method which amortizes such costs in the same ratio that current period
actual revenue bears to the estimated remaining unrecognized total revenues (ultimate revenue). Ultimate
48
revenue includes estimates over a period not to exceed ten years from the date of initial release of the film.
Participation costs and residuals are accrued and expensed over the applicable product life cycle based upon the
ratio of the current period's revenues to the estimated remaining total revenues for each production.
Costs of entertainment productions are subject to recoverability assessments, whenever events or changes
in circumstances indicate that the fair value of the film may be less than the unamortized cost, which for content
predominantly monetized individually, involves comparing the estimated fair values with the unamortized cost.
The fair value is determined based on a discounted cash flow analysis of the cash flows directly attributable to the
entertainment assets. The discounted cash flow analysis includes cash flow estimates of ultimate revenue as well
as a discount rate (a Level 3 fair value measurement). The discount rate used in the Company’s discounted cash
flow model reflects the time value of money, expectations about variation in the amount or timing of the most likely
cash flows, and the price market participants would seek for bearing the uncertainty inherent with the film asset.
The amount by which the unamortized costs of entertainment assets exceed their estimated fair values are written
off. As of January 29, 2022 and January 30, 2021, the Company had capitalized entertainment production costs
of $0.8 million and $1.7 million, respectively. The January 29, 2022 balance for entertainment production costs is
mostly comprised of several in-development entertainment projects.
In October 2021, the Company co-released the film Honey Girls and began recording film cost amortization.
The Company does not have any history with this type of entertainment transaction, therefore the Company
made a reasonable estimate of ultimate revenues for the film, and amortization of the film costs. The Company
recorded an immaterial amount of net revenue and film cost amortization during fiscal 2021 within the Selling,
general and administrative line in the Consolidated Statement of Operations and Comprehensive Income (Loss)
and includes it in the financial information of the Commercial reportable segment presented in Note 15 - Segment
Information. Additionally, as a result of the delivery and release of the film, the Company recorded receivables
totaling approximately $4.0 million during the third quarter stemming from a refundable Canadian Film Tax
Credit and other contractual obligations. These receivables were recorded as a reduction to the film costs
associated with the movie as they relate directly to previously capitalized expenses. Cash was received in the
fourth quarter for the receivables related to the contractual obligations. The refundable Canadian Film Tax Credit
of approximately $1.0 million was outstanding as of January 29, 2022. The remaining net production entertainment
asset related the Honey Girls film as of January 29, 2022 is immaterial to the consolidated financial statements.
Revenue
See Note 3 — Revenue for additional accounting information.
Cost of Merchandise Sold
Cost of merchandise sold - retail includes the cost of the merchandise, including royalties paid to licensors
of third-party branded merchandise; store occupancy cost, including store depreciation; cost of warehousing and
distribution; packaging; stuffing; damages and shortages; and shipping and handling costs incurred in shipment
to customers. Cost of merchandise sold - commercial includes the cost of the merchandise, including royalties
paid to licensors of third-party branded merchandise; cost of warehousing and distribution; packaging; stuffing;
damages and shortages; and shipping and handling costs incurred in shipment to customers.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses include store payroll and related benefits, advertising, credit
card fees, store supplies and store closing costs, as well as central office management payroll and related benefits,
travel, information systems, accounting, insurance, legal, and public relations. It also includes depreciation and
amortization of central office leasehold improvements, furniture, fixtures, and equipment. In addition, bad debt
expenses and accounts receivable related charges are included. Further, it includes store preopening expenses
which represent costs incurred prior to store openings, remodels and relocations including certain store set-up,
labor and hiring costs, rental charges, payroll, marketing, travel and relocation costs.
Advertising
The costs of advertising and marketing programs are charged to operations in the first period the program
takes place. Advertising expense was $16.4 million and $8.1 million for fiscal years 2021 and 2020, respectively.
49
Government Grants
As a result of the pandemic, governments enacted relief legislation and stimulus packages to help combat
the economic effects through such things as payroll expense reimbursement and business and restart grants. Due
to the nature of these grants relating to income, they can be presented in one of two ways: (1) a credit in the
income statement under a general heading such as "other income" or (2) as a reduction to the related
expense. The Company applied for reimbursement of payroll expenses in certain jurisdictions through
COVID related government programs for payroll paid to employees who were paid while not providing services to
the Company and for business and restart grants from the U.K government for businesses in the retail, hospitality
and leisure sectors. The Company recorded a reduction of expenses of $0.9 million and $0.8 million for the fifty-
two weeks ended January 29, 2022 and January 30, 2021, respectively, related to these wages within the Selling,
general and administrative line in the Consolidated Statement of Operations and Comprehensive Income (Loss).
The business and restart grants in the U.K. for businesses in the non-essential retail, hospitality and leisure
sectors, were applied for on a per-property basis to support businesses through the latest lockdown restrictions.
For the fifty-two weeks ended January 29, 2022 and January 30, 2021, the Company recorded business and
restart grants of $1.4 million and $4.2 million, respectively. These amounts were recorded within the Selling,
general and administrative line in the Condensed Consolidated Statement of Operations and Comprehensive
Income (Loss).
Income Taxes
Income taxes are accounted for using a balance sheet approach known as the liability method. The liability
method accounts for deferred income taxes by applying the rate, based on enacted tax law, that will be in effect
in the period in which the temporary differences between the book basis and the tax basis of assets and
liabilities reverse or are settled. Deferred taxes are reported on a jurisdictional basis.
Tax positions are reviewed at least quarterly and adjusted as new information becomes available. The
recoverability of deferred tax assets is evaluated by assessing the adequacy of future expected taxable income
from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available
tax planning strategies. These estimates of future taxable income inherently require significant judgment. To the
extent it is considered more likely than not that a deferred tax asset will be not recovered, a valuation allowance
is established.
The Company assesses its total liability for uncertain tax positions on a quarterly basis. The Company
recognizes estimated interest and penalties related to unrecognized tax benefits in income tax expense. See Note
8—Income Taxes for further discussion.
Income Per Share
Basic income per share is determined by dividing net income allocated to common stockholders by the
weighted average number of common shares outstanding during the period. In periods of net loss, no effect is
given to the Company’s participating securities as they do not contractually participate in the losses of the
Company. Diluted income per share reflects the potential dilution that could occur if options to issue common
stock were exercised. In periods in which the inclusion of such instruments is anti-dilutive, the effect of such
securities is not given consideration.
Stock-Based Compensation
The Company has share-based compensation plans covering certain management groups and its Board of
Directors. The Company accounts for share-based payments utilizing the fair value recognition provisions of ASC
718 Compensation - Stock Compensation. The Company recognizes compensation cost for equity awards over
the requisite service period for the entire award and forfeitures as they occur. See Note 12 — Stock Incentive
Plans for additional information.
50
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and foreign currency translation
adjustments.
Deferred Compensation Plan
The Company maintains a Deferred Compensation Plan for the benefit of certain management employees.
The investment funds offered to participants generally correspond to the funds offered in the Company’s 401(k)
plan, and the account balance fluctuates with the investment returns on those funds. The fair value of the assets,
classified as trading securities, and corresponding liabilities are based on unadjusted quoted market prices for the
funds in active markets with sufficient volume and frequency (Level 1). As of January 29, 2022, the current portions
of the assets and related liabilities of $0.4 million are presented in prepaid expenses and other current assets and
accrued expenses in the accompanying Consolidated Balance Sheets, and the non-current portions of the assets
and the related liabilities of $0.6 million are presented in other assets, net and other liabilities in the accompanying
Consolidated Balance Sheets. As of January 30, 2021, the current portions of the assets and related liabilities of
$0.4 million are presented in prepaid expenses and other current assets and accrued expenses in the
accompanying Consolidated Balance Sheets, and the non-current portions of the assets and the related liabilities
of $0.9 million are presented in other assets, net and other liabilities in the accompanying Consolidated Balance
Sheets.
Fair Value of Financial Instruments
For purposes of financial reporting, management has determined that the fair value of financial instruments,
including cash, cash equivalents and restricted cash, receivables, short term investments, accounts payable and
accrued expenses, approximates book value at January 29, 2022 and January 30, 2021.
Use of Estimates
The preparation of the consolidated financial statements requires management of the Company to make a
number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. The assumptions used by management in future estimates
could change significantly due to changes in circumstances, including, but not limited to, challenging economic
conditions. Accordingly, future estimates may change significantly. Significant items subject to such estimates and
assumptions include the calculation of revenue from gift card breakage, valuation of long-lived asset for asset
impairments, income tax valuation allowances on deferred income tax assets, and the determination of deferred
revenue under the Company’s customer loyalty program.
Sales Tax Policy
The Company’s revenues in the consolidated statement of operations are net of sales taxes.
Foreign Currency
Assets and liabilities of the Company’s foreign operations with functional currencies other than the U.S.
dollar are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are
translated at average rates prevailing during the year. Translation adjustments are reported in accumulated other
comprehensive income, a separate component of stockholders’ equity. Gains and losses resulting from foreign
exchange transactions, including the impact of the re-measurement of the Company’s balance sheet, are recorded
as a component of selling, general and administrative expenses. The Company recorded a loss of $0.5 million and
a gain of $0.6 million related to foreign currency in fiscal 2021 and 2020, respectively.
51
Recent Accounting Pronouncements – Adopted in the current year
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes,” which simplifies the accounting for income taxes by eliminating certain exceptions
related to intraperiod tax allocation, simplifies certain elements of accounting for basis differences and deferred
tax liabilities during a business combination, and standardizes the classification of franchise taxes. The ASU is
effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years,
and early adoption is permitted. The Company adopted this ASU effective January 31, 2021. The adoption of this
ASU did not have a material impact on the Company's consolidated financial statements.
In November 2020, the SEC issued Rule 33-10890, “Management’s Discussion and Analysis, Selected
Financial Data, and Supplementary Financial Information.” Registrants are required to apply the amended rules
for their first fiscal year ending on or after August 9, 2021 and could be early adopted in its entirety as of February
10, 2021. This rule is effective for the Company's Annual Report on Form 10-K for the year ended January 29,
2022. The rule modernized, simplified and enhanced financial statement disclosures required by Regulation S-K.
The Company adopted this rule in the fiscal 2021 Annual Report on Form 10-K which did not result in
any material changes to the Company's Item 7. Management's Discussion and Analysis section due to its Smaller
Reporting Company filing status. The Company provides narrative explanations for the full fiscal year's results as
viewed by management, its material cash requirements, liquidity, and capital obligations, the effects of inflation
on its business, and its critical accounting estimates, among other things, within Management's Discussion and
Analysis that meet the required enhancements outlined in this Rule.
In November 2021, the FASB issued ASU No. 2021-10, "Government Assistance (Topic 832), Disclosures
by Business Entities About Government Assistance", which requires entities to provide disclosures on material
government assistance transactions for annual reporting periods. The disclosures included information around
the nature of the assistance, the related accounting policies used to account for government assistance, the effect
of government assistance on the entity's financial statements, and any significant terms and conditions of the
agreements, including commitments and contingencies. The ASU is effective for fiscal years beginning after
December 15, 2021 and early adoption is permitted with an entity either applying the update prospectively from
the date of adoption or retrospectively to applicable transactions. The Company chose to early adopt this ASU
upon its release using the retrospective transition option for the fiscal year beginning February 2, 2020 in the
Annual Report on Form 10-K as of January 29, 2022 for the government grants it received in fiscal years 2020
and 2021 as part of COVID-related assistance programs. The Company has documented its accounting policy,
the nature of the grants received, their effects on the financial statements, and the conditions of the grants within
the "Government Grants" accounting policy. The adoption of this ASU did not have a material impact on the
Company's consolidated financial statements.
Recent Accounting Pronouncements – Pending adoption
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments.” This ASU requires entities to report “expected” credit
losses on financial instruments and other commitments to extend credit rather than the current “incurred loss”
model. These expected credit losses for financial assets held at the reporting date are to be based on historical
experience, current conditions and reasonable and supportable forecasts. This ASU will also require enhanced
disclosures relating to significant estimates and judgments used in estimating credit losses, as well as the credit
quality. As the Company is currently filing as a Smaller Reporting Company, this ASU is not effective until the
fiscal year beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of
this ASU will have on its consolidated financial statements.
In March 2020 and January 2021, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic
848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and ASU 2021-01, "Reference
Rate Reform (Topic 848): Scope", respectively. The ASUs provide optional expedients and exceptions for applying
U.S. GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank
Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform,
if certain criteria are met. The guidance in these ASUs were effective upon issuance and, once adopted, may be
applied prospectively to contract modifications and hedging relationships through December 31, 2022. The
Company's debt agreement, and the first amendment, currently utilizes LIBOR and, therefore, this ASU is not yet
effective for the Company. To the extent the debt arrangement changes to another accepted rate, we will evaluate
whether the option expedients and exceptions outlined in this ASU can be utilized.
52
We have reviewed all other recently issued, but not yet effective, accounting pronouncements and do not
expect the future adoption of any such pronouncements will have a material impact on our financial condition or
the results of our operations.
(3) Revenue
Nearly all of the Company’s revenue is derived from retail sales (including e-commerce sites) and is
recognized when control of the merchandise is transferred to the customer. The Company accounts for revenue
in accordance with Topic 606, Revenue from Contracts with Customers. The Company's disaggregated revenue
is fully disclosed as net sales to external customers by reporting segment and by geographic area (See Note 15 —
Segment Information for additional information). The Company's direct-to-consumer reporting segment represents
nearly 97% of consolidated revenue. The majority of these sales transactions are single performance obligations
that are recorded when control is transferred to the customer.
The following is a description of principal activities from which the Company generates its revenue, by
reportable segment.
The Company’s direct-to-consumer segment includes the operating activities of corporately-managed
stores, other retail-delivered operations and online sales. Direct-to-consumer revenue is recognized when control
of the merchandise is transferred to the customer and for the Company’s online sales, control generally transfers
upon delivery to the customer. Revenue is measured as the amount of consideration, including any discounts or
incentives, the Company expects to receive in exchange for transferring the merchandise. Product returns have
historically averaged less than one-half of one percent due to the interactive nature of sales, where consumers
customize their own stuffed animal. The Company has elected to exclude from revenue all collected sales, value
add and other taxes paid by its customers.
For the Company’s gift cards, revenue is deferred for single transactions until redemption including any
related gift card discounts. Three-quarters of gift cards are redeemed within three years of issuance and over the
last three years, approximately 60% of gift cards issued have been redeemed within the first twelve months. In
addition, unredeemed gift cards or breakage revenue is recorded in proportion to the customer’s redemption
pattern using an estimated breakage rate based on historical experience. Breakage rates are calculated annually
at the end of the fiscal year and are used to record gift card breakage over the next fiscal year until the annual
breakage rate update is performed. In regard to the consolidated balance sheet, contract liabilities for gift cards
are classified as gift cards and customer deposits.
During fiscal 2021 and 2020, the Company experienced lower redemptions of its gift cards for all periods of
outstanding activated cards compared to pre-COVID redemption patterns (fiscal year 2019 and earlier), which
impacts the gift card breakage rate. The Company does not believe that the redemption pattern experienced in
fiscal 2020 and 2021 reflects the pattern in the future and has adjusted the historical redemption data used to
calculate the breakage rate. The Company utilizes historical redemption data to develop a model to analyze the
amount of breakage expected for gift cards sold to customers and business partners. The Company continues to
evaluate expected breakage annually and adjusts the breakage rates in the fourth quarter of each year, or other
times, if significant changes in customer behavior are detected. Changes to breakage estimates impact revenue
recognition prospectively. Further, given the magnitude of the Company's gift card liability, the changes in
breakage rates could have a significant impact on the amount of breakage revenue recognized in future
periods. For the fifty-two weeks ended January 29, 2022 and January 30, 2021, net retail sales included gift card
breakage revenue of $6.5 million and $3.7 million, respectively.
For certain qualifying transactions, a portion of revenue transactions are deferred for the obligation related
to the Company’s loyalty program or when a material right in the form of a future discount is granted. In these
transactions, the transaction price is allocated to the separate performance obligations based on the relative
standalone selling price. The standalone selling price for the points earned for the Company’s loyalty program is
estimated using the net retail value of the merchandise purchased, adjusted for estimated breakage based on
historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized
immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired.
The Company issues certifications monthly for those loyalty program members who have earned 100 or more
points in the previous month with certifications historically expiring in three months if not redeemed. The Company
assesses the redemption rates of its certifications on a quarterly basis to update the rate at which loyalty program
53
points turn into certifications and the rate that certifications are redeemed. In regard to the consolidated balance
sheet, contract liabilities related to the loyalty program are classified as deferred revenue and other.
The Company’s commercial segment includes transactions with other businesses and are mainly comprised
wholesale sales of merchandise, supplies and fixtures, licensing the Company’s intellectual properties for third-
party use, and revenues generated from entertainment activities. Revenue for wholesale sales is recognized when
control of the merchandise or fixtures is transferred to the customer, which generally occurs upon delivery to the
customer. The license agreements provide the customer with highly interrelated rights that are not distinct in the
context of the contract and, therefore, have been accounted for as a single performance obligation and recognized
as licensee sales occur. If the contract includes a guaranteed minimum, the minimum guarantee is recognized as
licensee sales occur over the guarantee term until such time as royalties earned through licensee sales exceed
the minimum guarantee. The Company classifies these guaranteed minimum contract liabilities as deferred
revenue and other on the consolidated balance sheet. Entertainment revenue is generated through the sale of
entertainment assets directly to customers or through licensing agreements.
The Company’s international franchising segment includes the activities with franchisees who operate store
locations in certain countries and includes development fees, sales-based royalties, merchandise, supplies and
fixture sales. The Company’s obligations under the franchise agreement are ongoing and include operations and
product development support and training, generally concentrated around new store openings. These obligations
are highly interrelated rights that are not distinct in the context of the contract and, therefore, have been accounted
for as a single performance obligation and recognized as franchisee sales occur. If the contract includes an initial,
one-time nonrefundable development fee, this fee is recognized on a straight-line basis over the term of the
franchise agreement, which may extend for periods up to 25 years. The Company classifies these initial, one-time
nonrefundable franchise fee contract liabilities as deferred revenue and other on the consolidated balance sheet.
Revenue from merchandise and fixture sales is recognized when control is transferred to the franchisee which
generally occurs upon delivery to the customer.
The Company also incurs expenses directly related to the startup of new franchises, including finder’s fees,
legal and travel costs as well as expenses related to its ongoing support of the franchisees, predominantly travel
and employee compensation. Accordingly, the Company’s policy is to capitalize the finder’s fee, an incremental
cost, and expense all other costs as incurred. Additionally, the Company amortizes these capitalized costs into
expense in the same pattern as the development fee's recording of revenue as described previously.
(4) Leases
The table below presents information related to the lease costs for operating leases for the periods
presented (in thousands).
For the Year Ended
January 29, 2022 January 30, 2021
Operating lease costs ........................................................................... $
Variable lease costs ..............................................................................
Short term lease costs ..........................................................................
Total Operating Lease costs .............................................................. $
34,183 $
6,718
56
40,957 $
35,923
2,808
44
38,775
Other information
The table below presents supplemental cash flow information related to leases for the periods presented (in
thousands).
Operating cash flows for operating leases ............................................ $
For the Year Ended
January 29, 2022 January 30, 2021
36,068
43,627
Operating cash flows for operating leases for fiscal 2021 exceeded expense recorded for the same
period as the Company paid the majority of its deferred rent obligations obtained during rent negotiations in
fiscal 2020. The Company had no deferred rent remaining to be paid as of the January 29, 2022.
54
As of January 29, 2022, the weighted-average remaining operating lease term was 4.3 years and the
weighted-average discount rate was 6.0% for operating leases recognized on the consolidated balance sheet.
The Company recorded no impairment charges during fiscal 2021 against right-of-use operating lease
assets. The Company recorded total impairment charges for fiscal 2020 of $3.8 million on right-of-use lease
assets.
Undiscounted cash flows
The table below reconciles the undiscounted cash flows for each of the first five years and total remaining
years to the operating lease liabilities recorded on the balance sheet (in thousands).
Operating Leases
2022 ........................................................................................................................................
2023 ........................................................................................................................................
2024 ........................................................................................................................................
2025 ........................................................................................................................................
2026 ........................................................................................................................................
Thereafter ................................................................................................................................
Total minimum lease payments ...........................................................................................
Less: amount of lease payments representing interest ..........................................................
Present value of future minimum lease payments ...............................................................
Less: current obligations under leases ...................................................................................
Long-term lease obligations ................................................................................................. $
30,280
25,741
21,089
15,468
8,926
11,403
112,907
(14,355)
98,552
(25,245)
73,307
As of January 29, 2022, the Company did not have executed leases that have not yet commenced.
(5) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
January 29,
2022
January 30,
2021
Prepaid occupancy (1) ............................................................................ $
Prepaid income taxes ............................................................................
Prepaid insurance .................................................................................
Prepaid gift card fees ............................................................................
Prepaid royalties ...................................................................................
Other (2)..................................................................................................
Total ................................................................................................... $
2,656 $
178
929
1,545
607
7,728
13,643 $
1,526
314
884
1,291
242
5,854
10,111
(1) Prepaid occupancy consists of prepaid expenses related to non-lease components.
(2) Other consists primarily of prepaid expenses related to IT maintenance contracts and software as a service.
Other non-current assets consist of the following (in thousands):
Entertainment production asset ............................................................ $
Deferred compensation .........................................................................
Other (1)..................................................................................................
Total ...................................................................................................... $
833 $
697
546
2,076 $
1,715
1,037
629
3,381
(1) Other consists primarily of deferred financing costs related to the Company's credit facility.
January 29,
2022
January 30,
2021
55
(6) Property and Equipment, net
Property and equipment, net consist of the following (in thousands):
January 29,
2022
January 30,
2021
Land ...................................................................................................... $
Furniture and fixtures ............................................................................
Machinery and equipment .....................................................................
Leasehold improvements ......................................................................
Building ..................................................................................................
Computer hardware ..............................................................................
Computer software ................................................................................
Construction in progress .......................................................................
Less accumulated depreciation.............................................................
Total, net ............................................................................................ $
2,261 $
26,405
15,355
99,043
14,970
20,415
23,924
4,952
207,325
158,359
48,966 $
2,261
26,605
15,101
97,434
14,970
19,534
22,358
3,707
201,970
148,997
52,973
For fiscal 2021 and 2020, depreciation expense was $12.3 million and $13.2 million, respectively.
The Company recorded no impairment charges during fiscal 2021 for long-lived assets. The Company
recorded $3.5 million of property, plant, and equipment impairment charges during fiscal 2020, the majority of
which related to the Company's retail stores in the U.S. and U.K.
(7) Accrued Expenses
Accrued expenses consist of the following (in thousands):
January 29,
2022
January 30,
2021
Accrued wages, bonuses and related expenses .................................. $
Sales tax payable ..................................................................................
Accrued rent and related expenses (1) ..................................................
Current income taxes payable ..............................................................
Total ................................................................................................... $
21,688 $
2,146
1,093
616
25,543 $
13,185
2,048
1,993
325
17,551
(1) Accrued rent and related expenses consist of accrued costs associated with non-lease components.
For fiscal 2021 and 2020, defined contribution expense was $1.1 million and $0.8 million, respectively,
included within Accrued wages, bonuses and related expenses.
(8)
Income Taxes
The Company’s income (loss) before income taxes from domestic and foreign operations (which include
the U.K., Canada, Ireland, China, and Denmark (prior to its closing in January 2021)), is as follows (in thousands):
Domestic ................................................................................................... $
Foreign ......................................................................................................
Total income (loss) before income taxes ............................................... $
46,473 $
4,237
50,710 $
(21,774)
1,588
(20,186)
Fiscal year ended
January 29,
2022
January 30,
2021
56
The components of the income tax expense are as follows (in thousands):
Fiscal year ended
January 29,
2022
January 30,
2021
Current:
U.S. Federal ........................................................................................ $
U.S. State ............................................................................................
Foreign ................................................................................................
Deferred:
U.S. Federal ........................................................................................
U.S. State ............................................................................................
Foreign ................................................................................................
Income tax expense ...................................................................... $
8,921 $
2,017
128
(4,870 )
(2,140 )
(611 )
3,445 $
(876 )
321
(12 )
1,555
1,232
577
2,797
The provision for income taxes was $3.4 million in fiscal 2021 compared to $2.8 million in fiscal 2020. The
2021 effective rate of 6.8% differed from the statutory rate of 21% primarily due to the tax benefit resulting from
the reversal of the valuation allowance in North America. The 2020 effective rate of (13.9%) differed from the
statutory rate of 21% primarily due to no tax benefit being recorded on pretax loss as a full valuation allowance
had been recorded globally. Fiscal 2020 was also impacted by the $3.3 million valuation allowance recorded on
the beginning balance of the net deferred tax assets in North America.
The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable
income to realize its deferred income tax assets. In the fourth quarter of fiscal 2021, the Company performed an
analysis of all available positive and negative evidence in this determination. As the Company was no longer in
a cumulative loss position in North America for the three-year period ending January 29, 2022, the Company
recorded a benefit of $7.8 million for the reversal of the beginning-of-the-year valuation allowance in North
America based on the scheduled reversals of its deferred tax liabilities and projected future taxable income.
In the first quarter of fiscal 2020, as the Company had anticipated incurring a cumulative book loss in North
America over the three-year period ended January 30, 2021, management evaluated the realizability of the
Company’s North America deferred tax assets, including an analysis of all available positive and negative
evidence. The three-year cumulative loss is a significant piece of negative evidence. ASC 740 requires objective
historical evidence be given more weight
future
income. Accordingly, in the first quarter of fiscal 2020, the Company recorded a $3.3 million valuation allowance
on its North America deferred tax assets. During fiscal 2020, the Company recorded an additional $3.7 million
valuation allowance globally due to cumulative losses and uncertainty about future earnings.
than subjective evidence, such as
forecasts of
57
Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):
January 29,
January 30,
2022
2021
Deferred tax assets:
Operating lease liability ....................................................................... $
Net operating loss carryforwards ........................................................
Deferred revenue ................................................................................
Accrued compensation ........................................................................
Depreciation .........................................................................................
Investment in affiliates .........................................................................
Deferred compensation .......................................................................
Accrued expenses ...............................................................................
Receivables write-offs .........................................................................
Inventories ...........................................................................................
Intangible assets .................................................................................
Carryforward of tax credits ..................................................................
Other ....................................................................................................
Total gross deferred tax assets ....................................................
Less: Valuation allowance ...................................................................
Total deferred tax assets, net of valuation allowance ...................
Deferred tax liabilities:
Operating lease right-of-use assets ....................................................
Depreciation ........................................................................................
Deferred expense ................................................................................
Deferred revenue ................................................................................
Other ....................................................................................................
Total deferred tax liabilities ...........................................................
Net deferred tax assets ................................................................. $
27,504 $
3,496
3,228
2,678
1,636
1,583
1,149
820
704
634
321
227
920
44,900
(9,795 )
35,105
(21,395 )
(4,369 )
(1,708 )
-
(20 )
(27,492 )
7,613 $
33,058
3,422
3,903
1,098
2,412
1,215
1,802
389
830
263
388
2,251
39
51,070
(15,401 )
35,669
(27,214 )
(4,968 )
(1,767 )
(1,362 )
(358 )
(35,669 )
-
As of January 29, 2022, the Company had gross net operating loss (NOL) carryforwards of approximately
$13.8 million, most of which relate to the U.K. where NOLs have no expiration date.
The Company continues to assert its investments in foreign subsidiaries are permanent in duration and it is
not practical to estimate the income tax liability on the outside basis differences.
As of January 29, 2022, the Company had total unrecognized tax benefits of $0.3 million, of which
approximately $0.3 million would favorably impact the Company’s provision for income taxes if recognized. As of
January 30, 2021, the Company had total unrecognized tax benefits of $0.2 million, of which approximately $0.2
million would favorably impact the Company’s provision for income taxes if recognized. The Company reviews its
uncertain tax positions periodically and accrues interest and penalties accordingly. Accrued interest and penalties
included within other liabilities in the consolidated balance sheets were less than $0.1 million for both years ended
as of January 29, 2022 and January 30, 2021. The Company recognizes accrued interest and penalties related
to unrecognized tax benefits as a component of the provision for income taxes within the consolidated statement of
operations. For the years ended January 29, 2022 and January 30, 2021, the Company recognized a benefit of
less than $0.1 million for interest and penalties.
58
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in
thousands):
January 29,
2022
January 30,
2021
Balance at beginning of year ...............................................................
Increases for prior year tax positions................................................
Lapse of statute of limitations ...........................................................
Balance at end of year .........................................................................
170
164
-
334
178
46
(54)
170
Management estimates it is reasonably possible that the amount of unrecognized tax benefits could
decrease by as much as $0.3 million in the next twelve months as a result of the resolution of audits currently in
progress involving issues common to multinational corporations.
The following tax years remain open in the Company’s major taxing jurisdictions as of January 29, 2022:
United States (Federal) ................................................................ 2018 through 2021
United Kingdom ........................................................................... 2017 through 2021
The Company also files tax returns in various other international jurisdictions and numerous states for which
various tax years are subject to examination and currently involved in audits.
(9) Line of Credit
On December 17, 2021, Build-A-Bear Workshop, Inc. (the “Company”), as borrowing agent; Build-A-Bear
Retail Management, Inc., together with the Company, as borrowers (collectively, the “Borrowers”); and Build-A-
Bear Workshop Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-Bear Card Services, LLC and
Build-A-Bear Workshop Canada, Ltd. (collectively, the “Guarantors”); entered into a First Amendment to Revolving
Credit and Security Agreement (the “First Amendment”) with the lenders party thereto (the “Lenders”); and PNC
Bank, National Association, as agent for Lenders (in such capacity, “Agent”). The First Amendment amended the
Revolving Credit and Security Agreement (the “Original Credit Agreement,” and, as amended by the First
Amendment, the “Credit Agreement”), dated as of August 25, 2020 among the Company, the Borrowers, the
Guarantors, the Lenders, and the Agent.
The First Amendment (i) extended the maturity date of the Credit Agreement to December 17, 2026, (ii)
eliminated the minimum interest payment requirement, (iii) reduced the facility fee related to undrawn availability,
(iv) reduced the availability requirement under the financial covenant, (v) provided the Company with additional
flexibility to make permitted investments, declare dividends, repay intercompany loans or repurchase its stock,
(vi) increased the threshold amounts for certain events of default, and (vii) reduced the required frequency of
various information and reporting requirements under certain circumstances.
The Credit Agreement continues to provide for a senior secured revolving loan in aggregate principal
amount of up to $25,000,000 (subject to a borrowing base formula), which may be increased with the consent of
the Lenders by an amount not to exceed $25,000,000, subject to the conditions set forth in the Credit Agreement
(the “Increase Option”). The borrowing base under the Credit Agreement continues to be based on specified
percentages of Eligible Credit Card Receivables, Eligible Inventory and, under certain circumstances, Eligible
Foreign In-Transit Inventory and, in the discretion of the Agent, Eligible Receivables. The First Amendment
eliminated certain eligibility requirements for Eligible Foreign In-Transit Inventory and Eligible Inventory. The Credit
Agreement continues to provide for swingline loans of up to $5,000,000 and the issuance of standby or commercial
letters of credit of up to $5,000,000.
59
Revolving advances under the Credit Agreement will continue to be secured (subject to permitted liens and
certain other exceptions) by a first priority lien on substantially all of the personal property of the Company and all
of its U.S. and Canadian subsidiaries, including certain receivables (including receivables from the sale inventory
and credit card receivables but excluding certain franchise receivables), equipment and fixtures, intellectual
property, inventory and equity interests held by the Borrowers and the Guarantors in their respective domestic
and foreign subsidiaries.
Borrowings under the Credit Agreement continue to bear interest (a) at a base rate determined under the
Credit Agreement, or (b) at the Borrower's option, at a rate based on LIBOR, plus in either case a margin based
on average undrawn availability as determined in accordance with the Credit Agreement, but the First Amendment
reduced such rates and reduced the LIBOR floor. A $500,000 minimum interest payment requirement has been
eliminated and the Facility Fee Percentage which previously was either 0.50% or 0.375% depending on the
Average Undrawn Availability was reduced to 0.25% by the First Amendment.
The Credit Agreement continues to require the Company to comply with one financial covenant. Previously,
under the Original Credit Agreement, the Company was required to maintain availability (as determined in
accordance with the Credit Agreement) at all times equal to or greater than the greater of (a) 12.5% of the Loan
Cap and (b) $3,125,000 (subject to increase upon exercise of the Increase Option). The First Amendment revised
that covenant to require the Company to maintain availability (as determined in accordance with the Credit
Agreement) at all times equal to or greater than the greater of (a) 10.0% of the Loan Cap and (b) $1,875,000
(subject to increase upon exercise of the Increase Option). The “Loan Cap” is the lesser of (1) $25,000,000 less
the outstanding amount of loans and letters of credit under the Credit Agreement and (2) the borrowing base from
time to time under the Credit Agreement. The First Amendment reduced the required frequency of various
information and reporting requirements under certain circumstances.
The Credit Agreement continues to contain customary events of default, including without limitation events
of default based on payment obligations, material inaccuracies of representations and warranties, covenant
defaults, final judgments and orders, unenforceability of the Credit Agreement, material ERISA events, change in
control, insolvency proceedings, and defaults under certain other obligations and the First Amendment increased
the threshold amounts for certain events of default. An event of default may cause the applicable interest rate and
fees to increase by 2% until such event of default has been cured, waived, or amended.
The Credit Agreement continues to contain typical negative covenants, including, among other things, that
the Borrower will not incur indebtedness except for permitted indebtedness or make any investments except for
permitted investments, declare dividends or repurchase its stock except as permitted, acquire any subsidiaries
except in connection with a permitted acquisition, or merge or consolidate with any other entity or acquire all or
substantially all of the assets of any other company outside the ordinary course of business. The First Amendment
provides the Company with additional flexibility to make permitted investments, declare dividends, repay
intercompany loans and repurchase its stock.
At the closing date of the First Amendment, the Company had a $750,000 letter of credit issued and no
outstanding indebtedness under the Credit Agreement; and' the Company is currently in compliance with the
Credit Agreement covenants. As of January 29, 2022, the Company had a borrowing base of $23.3 million. As a
result of a $750,000 letter of credit against the line of credit at the end of fiscal 2021, approximately $22.5 million
was available for borrowing. The Company had no outstanding borrowings as of January 29, 2022.
In connection with the First Amendment, the Company incurred less than $0.1 million of costs and fees. As
the Company had no outstanding borrowings as of the date of the First Amendment. These costs and fees were
recorded as a deferred asset within the Other assets, net line within the Consolidated Balance Sheet; and, total
remaining deferred asset balance will be amortized over the remaining term of the agreement.
(10) Commitments and Contingencies
Litigation
In the normal course of business, the Company is subject to legal proceedings, government inquiries and
claims, and other commercial disputes. If one or more of these matters has an unfavorable resolution, it is possible
that the results of operations, liquidity or financial position of the Company could be materially affected in any
60
particular period. The Company accrues a liability for these types of contingencies when it believes that it is both
probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. Gain
contingencies are recorded when the underlying uncertainty has been settled.
Assessments made by the U.K. customs authority in 2012 were appealed by the Company, which has paid
the disputed duty, strictly under protest, pending the outcome of the continuing dispute, and this is included in
receivables, net in the DTC segment. The U.K. customs authority contested the Company's appeal. Rulings by
the trial court in November 2019 and upper tribunal in March 2021 held that duty was due on some, but not all, of
the products at issue. The Company petitioned the Court of Appeal for permission to appeal certain elements of
the Upper Tribunal decision and, in early November 2021, a judge granted the Company's petition for permission
to appeal those elements of the Upper Tribunal decision on some, but not all, of the grounds of appeal that the
Company had put forward. An appeal is set to be heard by the Court of Appeal in May 2022. The Company
maintains a provision against the related receivable, based on a current evaluation of collectability, using the latest
facts available in the dispute. As of January 29, 2022, the Company had a gross receivable balance of $4.5 million
and a reserve of $3.5 million, leaving a net receivable of $1.0 million. The Company believes that the outcome of
this dispute will not have a material adverse impact on the results of operations, liquidity or financial position of
the Company.
In August 2021, a putative class action lawsuit was filed against Build-A-Bear Workshop, Inc., asserting
claims under the Telephone Consumer Protection Act (the "TCPA") alleging that the Company continued to send
marketing text messages to mobile phone numbers registered on the National Do Not Call Registry after allegedly
opting-out of receiving them. Statutory damages under the TCPA are assessed at $500 per violation (i.e. per text
message), and up to $1,500 per violation if the violation was knowing or willful. No class has yet been certified in
the matter and the litigation is in the early stages of discovery. Accordingly, as of January 29, 2022, the
Company cannot determine a reasonable estimate of the amount of loss or range of loss, and therefore, nothing
is accrued for this matter.
(11) Net Income (Loss) Per Share
The Company computes both basic and diluted earnings per common share. In periods of net loss, no effect
is given to the Company’s participating securities as they do not contractually participate in the losses of the
Company. The following table sets forth the computation of basic and diluted income (loss) per share (in
thousands, except share and per share data):
Fiscal year ended
January 29,
2022
January 30,
2021
NUMERATOR:
Net income (loss) before allocation of earnings to participating
securities ............................................................................................ $
Less: Earnings allocated to participating securities ..............................
Net income (loss) .................................................................................. $
47,265 $
-
47,265 $
(22,983)
-
(22,983)
DENOMINATOR:
Weighted average number of common shares outstanding - basic ......
Dilutive effect of share-based awards:
Weighted average number of common shares outstanding - dilutive ...
Basic income (loss) per common share attributable to Build-A-Bear
Workshop, Inc. stockholders .............................................................. $
Diluted income (loss) per common share attributable to Build-A-Bear
Workshop, Inc. stockholders .............................................................. $
15,460,634
661,949
16,122,583
14,923,304
-
14,923,304
3.06 $
2.93 $
(1.54)
(1.54)
In calculating diluted earnings per share for fiscal 2021 and 2020, options to purchase 52,812 and 841,401
shares of common stock, respectively, were outstanding at the end of the period, but were not included in the
computation of diluted income per share due to their anti-dilutive effect under provisions of ASC 260-10.
61
(12) Stock Incentive Plans
In 2004, the Company adopted the Build-A-Bear Workshop, Inc. 2004 Stock Incentive Plan which the
Company amended and restated in 2009 and 2014 (collectively, the Incentive Plans). In 2017, the Company
adopted the Build-A-Bear Workshop, Inc 2017 Omnibus Incentive Plan
On April 14, 2020, the Board of Directors (the “Board”) of Build-A-Bear Workshop, Inc. (the “Company”)
adopted, subject to stockholder approval, the Build-A-Bear Workshop, Inc. 2020 Omnibus Incentive Plan
(the “2020 Incentive Plan”). On June 11, 2020, at the Company’s 2020 Annual Meeting of Stockholders (the
“Annual Meeting”), the Company’s stockholders approved the 2020 Incentive Plan. The 2020 Incentive Plan,
which is administered by the Compensation and Development Committee of the Board (the "Compensation
Committee"), permits the grant of stock options (including both incentive and non-qualified stock options), stock
appreciation rights, other stock-based awards, including restricted stock and restricted stock units, cash-based
awards, and performance awards pursuant to the terms of the 2020 Incentive Plan. The 2020 Incentive Plan will
terminate on April 14, 2030, unless terminated earlier by the Board. The number of shares of the Company’s
common stock authorized for issuance under the 2020 Incentive Plan is 1,000,000, plus shares of stock that
remained available for issuance under the Build-A-Bear Workshop, Inc. 2017 Omnibus Incentive Plan
(the “2017 Incentive Plan”) at the time the 2020 Incentive Plan was approved by the Company’s stockholders, and
shares that are subject to outstanding awards made under the 2017 Incentive Plan that on or after April 14,
2020 may be forfeited, expire or be settled for cash.
For the fifty-two weeks ended January 29, 2022 and January 30, 2021, Selling, general and administrative
expense included stock-based compensation expense of $2.6 million and $1.5 million, respectively. As of January
29, 2022, there was $2.5 million of total unrecognized compensation expense related to unvested stock awards
which is expected to be recognized over a weighted-average period of 1.4 years.
(a) Stock Options
The following table is a summary of the balance and activity for the Plans related to stock options for the
periods presented:
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value (in
millions)
Shares
Outstanding, February 1, 2021 .............................
Granted ..............................................................
Exercised ...........................................................
Canceled or expired ...........................................
Outstanding, January 29, 2022 .............................
805,701
-
(460,421)
(26,711)
318,569 $
9.96
-
7.81
8.13
13.23
3.7 $
1.5
Options Exercisable as of:
January 29, 2022 ...............................................
318,569 $
13.23
3.7 $
1.5
There were no options granted during fiscal 2021 or 2020. The expense recorded related to options granted
in fiscal 2018 and prior were determined using the Black-Scholes option pricing model and the provisions of SAB
107 and 110, which allow the use of a simplified method to estimate the expected term of “plain vanilla” options.
The total grant date fair value of options exercised in fiscal 2021 was $1.8 million and the total intrinsic value
was $4.3 million. Total grant date fair value and intrinsic value for options exercised in fiscal 2020 was less than
$0.1 million, respectively. The Company generally issues new shares to satisfy option exercises.
Future
total shares available
for option, non-vested stock and restricted stock grants were
416,391 and 568,523 at the end of 2021 and 2020, respectively.
62
(b) Restricted Stock
The Company granted restricted stock awards that vest over a one to three-year period. Recipients of time-
based restricted stock awards have the right to vote and receive dividends as to all unvested shares, although for
a portion of these awards, receipt of such dividends is contingent on such time-based awards vesting. Recipients
of performance-based restricted stock awards have the right to vote and receive dividends upon satisfaction of
the performance criteria and certain of these awards’ dividend rights are also subject to time-based vesting. The
following table is a summary of the balance and activity for the Plans related to unvested time-based and
performance-based restricted stock granted as compensation to employees and directors for the periods
presented:
Time-Based
Restricted Stock
Performance-Based
Restricted Stock
Outstanding, February 1, 2021 ....................................
Granted.........................................................................
Vested ..........................................................................
Forfeited .......................................................................
Outstanding, January 29, 2022 ....................................
931,172 $
148,701
(606,443 )
(9,850 )
463,580 $
Shares
Weighted
Average
Grant Date
Fair Value Shares
3.26
9.71
3.14
6.35
5.43
336,441 $
53,095
(32,521)
(50,735)
306,280 $
Weighted
Average
Grant Date
Fair Value
5.03
8.24
8.60
8.60
3.56
In fiscal 2021, the Committee awarded three-year performance-based restricted stock, established specific
profitability and revenue objectives for fiscal 2021, 2022, and 2023, and assigned a weighting to each
objective. Profitability is measured by the Company’s achievement of established cumulative consolidated
earnings before interest, taxes and depreciation and amortization (EBITDA) goals. Revenue will be measured by
the Company's achievement of revenue growth, by meeting established compound annual growth rate targets for
total web demand sales or cumulative total revenue objectives. The target number of shares awarded was 53,095
with a weighted average grant date fair value of $8.24 per share. If profitability and revenue exceed the threshold
objectives, the performance-based restricted stock award has a payout opportunity ranging from 25% to 200% of
the target number of shares.
In fiscal 2020, the Committee awarded three-year performance-based restricted stock subject to the
achievement liquidity, profitability and strategic performance objectives for fiscal 2020, 2021, and 2022. The target
number of shares awarded was 157,374 with a weighted average grant date fair value of $2.78 per share. If
liquidity, profitability and strategic performance exceeds the threshold objectives, the performance-based
restricted stock award has a payout opportunity ranging from 25% to 183.3% of the target number of shares.
In fiscal 2019, the Committee awarded three-year performance-based restricted stock subject to the
achievement of pre-established consolidated pre-tax income growth objectives for fiscal 2019, 2020, and
2021 and cumulatively across the same three fiscal years. The target number of shares awarded was 95,811 with
a weighted average grant date fair value of $5.61 per share. If consolidated pre-tax income growth exceeds the
threshold objective, the performance-based restricted stock award has a payout opportunity ranging from 25%
to 200% of the target number of shares.
As of January 29, 2022, the Company had recorded aggregate expense for the fiscal 2019, 2020, and
2021 three-year performance-based restricted stock awards of $1.0 million.
The vesting date fair value of shares that vested in fiscal 2021 and 2020 was $2.2 million and $2.3 million,
respectively.
63
(13) Stockholders’ Equity
The following table summarizes the changes in outstanding shares of common stock for fiscal 2020 and fiscal
2021:
Common
Stock
Shares as of February 1, 2020 .......................................................................................................
Shares issued under employee stock plans, net of shares withheld in lieu of tax withholding ..
Repurchase of Company shares ................................................................................................
Shares as of January 30, 2021 ......................................................................................................
Shares issued under employee stock plans, net of shares withheld in lieu of tax withholding ..
Repurchase of Company shares ................................................................................................
Shares as of January 29, 2022 ......................................................................................................
15,205,981
724,977
-
15,930,958
460,928
(245,554 )
16,146,332
(14) Major Vendors
Four vendors, each of whose primary manufacturing facilities are located in Asia, accounted for
approximately 74% and 77% of inventory purchases in 2021 and 2020, respectively.
(15) Segment Information
The Company’s operations are conducted through three operating segments consisting of DTC, commercial
and international franchising. The DTC segment includes the operating activities of corporately-managed locations
and other retail delivery operations in the U.S., Canada, China, Denmark, Ireland and the U.K., including the
Company’s e-commerce sites and temporary stores. The singles store locations in Denmark and China closed in
January 2021 and May 2021, respectively. The commercial segment includes the Company’s transactions with
other businesses, mainly comprised of licensing the Company’s intellectual properties for third party use and
wholesale activities. The international franchising segment includes the licensing activities of the Company’s
franchise agreements with store locations in Europe (outside of the U.K. and Ireland), Asia, Australia, the Middle
East and Africa. The operating segments have discrete sources of revenue, different capital structures and
different cost structures. These operating segments represent the basis on which the Company’s chief operating
decision maker regularly evaluates the business in assessing performance, determining the allocation of
resources and the pursuit of future growth opportunities. Accordingly, the Company has determined that each of
its operating segments represent a reportable segment. The three reportable segments follow the same
accounting policies used for the Company’s consolidated financial statements.
Following is a summary of the financial information for the Company’s reporting segments (in thousands):
Direct-to-
International
Consumer Commercial Franchising
Total
Fifty-two weeks ended January 29, 2022
Net sales to external customers ................................ $ 397,690 $
47,229
Income before income taxes .....................................
8,130
Capital expenditures .................................................
12,232
Depreciation and amortization ..................................
11,505 $
2,690
-
44
2,327 $ 411,522
50,710
8,130
12,276
791
-
-
Fifty-two weeks ended January 30, 2021
Net sales to external customers ................................ $ 249,210 $
Income (loss) before income taxes ...........................
(21,480)
5,046
Capital expenditures .................................................
13,262
Depreciation and amortization ..................................
4,426 $
1,402
-
30
1,674 $ 255,310
(20,186)
(108)
5,046
-
13,292
-
Total Assets as of:
January 29, 2022 ...................................................... $ 249,998 $
January 30, 2021 ......................................................
246,341
4,677 $
6,353
11,649 $ 266,324
261,372
8,678
64
The Company’s reportable segments are primarily determined by the types of products and services that
they offer. Each reportable segment may operate in many geographic areas. Revenues are recognized in the
geographic areas based on the location of the customer or franchisee. The following schedule is a summary of
the Company’s sales to external customers and long-lived assets by geographic area (in thousands):
North
America (1) Europe (2) Other (3)
Total
Fifty-two weeks ended January 29, 2022
Net sales to external customers ................................ $
Property and equipment, net .....................................
357,839 $
45,789
51,275 $
3,177
2,408 $ 411,522
48,966
-
Fifty-two weeks ended January 30, 2021
Net sales to external customers ................................
Property and equipment, net .....................................
219,889
48,955
33,784
4,018
1,637 $ 255,310
52,973
-
For purposes of this table only:
(1) North America includes the United States, Canada, and Puerto Rico.
(2) Europe includes the U.K. and Ireland and includes a corporately-managed location in Denmark that closed
in January 2021.
(3) Other includes franchise businesses outside of North America and Europe and includes a corporately-
managed location in China that closed in May 2021.
(a)(2) Financial Statement Schedules
Schedule II – Valuation and Qualifying Accounts
Beginning
Balance
Charged to
cost and
expenses
Other (1)
(2)
Ending
Balance
Deferred Tax Asset Valuation Allowance
2021 ............................................................................. $
2020 .............................................................................
15,401 $
6,774
(8,133 ) $
8,522
2,527 $
105
9,795
15,401
Receivables Allowance for Doubtful Accounts
2021 ............................................................................. $
2020 .............................................................................
7,369 $
6,280
896 $
1,405
(1,209 ) $
(316 ) $
7,056
7,369
(1) Other deferred tax asset valuation allowance represents reserves utilized and the impact of currency
translation.
(2) Other receivables allowance for doubtful accounts represent uncollectible accounts written off, recoveries and
the impact of currency translation.
65
(a)(3) Exhibits.
The following is a list of exhibits filed as a part of the Annual Report on Form 10-K:
Exhibit
Number Description
2.1
Agreement and Plan of Merger dated April 3, 2000 between Build-A-Bear Workshop, L.L.C. and the
Registrant (incorporated by reference from Exhibit 2.1 to our Registration Statement on Form S-1,
filed on August 12, 2004, Registration No. 333-118142)
3.1
Third Amended and Restated Certificate of Incorporation (incorporated by reference from Exhibit 3.1
of our Current Report on Form 8-K, filed on November 8, 2004)
3.2
Amended and Restated Bylaws, as amended through January 4, 2018 (incorporated by reference
from Exhibit 3.1 to our Current Report on Form 8-K, filed on January 4, 2018)
4.1
Specimen Stock Certificate (incorporated by reference from Exhibit 4.1 to Amendment No. 3 to our
Registration Statement on Form S-1, filed on October 1, 2004, Registration No. 333-118142)
4.2
Description of Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended (incorporated by reference from Exhibit 4.2 to our Annual Report on Form
10-K, filed on April 15, 2021)
10.1*
Build-A-Bear Workshop, Inc. Amended and Restated 2004 Stock Incentive Plan (incorporated by
reference from Exhibit 10.1 to our Current Report on Form 8-K, filed on August 1, 2006)
10.1.1* Second Amended and Restated Build-A-Bear Workshop, Inc. 2004 Stock Incentive Plan
(incorporated by reference from Exhibit 99.1 on our Registration Statement on Form S-8, filed on May
18, 2009)
10.1.2* Third Amended and Restated Build-A-Bear Workshop, Inc. 2004 Stock Incentive Plan (incorporated
by reference from Exhibit 10.1 on our Current Report on Form 8-K, filed on May 12, 2014)
10.1.3* Form of the Restricted Stock and Non-Qualified Stock Option Agreement under the Registrant’s Third
Amended and Restated 2004 Stock Incentive Plan (incorporated by reference from Exhibit 10.2 on
our Current Report on Form 8-K, filed on May 12, 2014)
10.1.4* Form of the Restricted Stock and Non-Qualified Stock Option Agreement under the Registrant’s Third
Amended and Restated 2004 Stock Incentive Plan (incorporated by reference from Exhibit 10.1 on
our Current Report on Form 8-K, filed on March 20, 2015)
10.1.5* Form of Restricted Stock and Non-Qualified Stock Option Agreement under the Registrant’s Third
Amended and Restated 2004 Stock Incentive Plan (incorporated by reference from Exhibit 10.7 on
our Current Report on Form 8-K, filed on March 11, 2016)
10.1.6* Form of Restricted Stock Agreement under the Registrant’s Third Amended and Restated 2004 Stock
Incentive Plan (incorporated by reference from Exhibit 10.1.11 on our Annual Report on Form 10-K,
for the year ended December 31, 2016)
10.1.7* Form of Restricted Stock and Non-Qualified Stock Option Agreement under the Registrant’s Third
Amended and Restated 2004 Stock Incentive Plan (incorporated by reference from Exhibit 10.2 on
our Current Report on Form 8-K, filed on March 17, 2017)
10.1.8* Build-A-Bear Workshop, Inc. 2017 Omnibus Incentive Plan (incorporated by reference from Exhibit
10.1 to our Current Report on Form 8-K, filed on May 12, 2017)
66
10.1.9* Form of Restricted Stock and Non-Qualified Stock Option Award Agreement under Registrant's 2017
Omnibus Incentive Plan (incorporated by reference from Exhibit 10.2 on our Current Report on Form
8-K, filed on March 21, 2018)
10.1.10*
Form of Restricted Stock Agreement (incorporated by reference from Exhibit 10.2 on our Current
Report on Form 8-K, filed on April 19, 2019)
10.1.11*
Description of Build-A-Bear Workshop, Inc. Long-Term Performance-Based Cash Incentive Program
for C-Level Employees (incorporated by reference from Exhibit 10.3 on our Current Report on Form 8-
K, filed on April 19, 2019)
10.1.12*
Description of Build-A-Bear Workshop, Inc. Cash Bonus Program for C-Level
Employees (incorporated by reference from Exhibit 10.1 on our Current Report on Form 8-K, filed on
October 9, 2020)
10.1.13*
Description of Build-A-Bear Workshop, Inc. Three-Year Performance-Based Cash Program for C-
Level Employees (incorporated by reference from Exhibit 10.2 on our Current Report on Form 8-K,
filed on October 9, 2020)
10.1.14*
Form of Restricted Stock Agreement under the Registrant’s 2020 Omnibus Incentive
Plan (incorporated by reference from Exhibit 10.3 on our Current Report on Form 8-K, filed on
October 9, 2020)
10.1.15*
Description of Build-A-Bear Work, Inc. Cash Bonus Program for C-Level Employees (incorporated by
reference from Exhibit 10.1 of our Current Report on Form 8-K, filed on April 16, 2021)
10.1.16*
Form of Restricted Stock Agreement under the Registrant’s 2020 Omnibus Incentive
Plan (incorporated by reference from Exhibit 10.3 of our Current Report on Form 8-K, filed on April 16,
2021)
10.2 *
Nonqualified Deferred Compensation Plan (incorporated by reference from Exhibit 10.42 to our
Annual Report on Form 10-K, for the year ended December 30, 2006)
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
Amended and Restated Employment, Confidentiality and Noncompete Agreement, dated March 7,
2016, by and between Eric Fencl and Build-A-Bear Workshop, Inc. (incorporated by reference from
Exhibit 10.1 on our Current Report on Form 8-K, filed on March 11, 2016)
Amended and Restated Employment, Confidentiality and Noncompete Agreement, dated March 7,
2016, by and between J. Christopher Hurt and Build-A-Bear Workshop, Inc. (incorporated by
reference from Exhibit 10.2 on our Current Report on Form 8-K, filed on March 11, 2016)
Amended and Restated Employment, Confidentiality and Noncompete Agreement, dated March 7,
2016, by and between Sharon Price John and Build-A-Bear Workshop, Inc. (incorporated by reference
from Exhibit 10.3 on our Current Report on Form 8-K, filed on March 11, 2016)
Amended and Restated Employment, Confidentiality and Noncompete Agreement, dated March 7,
2016, by and between Jennifer Kretchmar and Build-A-Bear Workshop, Inc. (incorporated by
reference from Exhibit 10.4 on our Current Report on Form 8-K, filed on March 11, 2016)
Amended and Restated Employment, Confidentiality and Noncompete Agreement, dated March 7,
2016, by and between Vojin Todorovic and Build-A-Bear Workshop, Inc. (incorporated by reference
from Exhibit 10.5 on our Current Report on Form 8-K, filed on March 11, 2016)
Form of Indemnification Agreement between the Registrant and its directors and executive officers
(incorporated by reference from Exhibit 10.11 to our Registration Statement on Form S-1, filed on
August 12, 2004, Registration No. 333-118142)
67
10.9
Revolving Credit and Security Agreement dated as of August 25, 2020 among the Company
and Build-A-Bear Retail Management, Inc., as borrowers; Build-A-Bear Workshop Franchise Holdings,
Inc., Build-A-Bear Entertainment, LLC, Build-A-Bear Card Services LLC and Build-A-Bear Workshop
Canada, Ltd., as guarantors; the lenders party thereto; and PNC Bank, National Association, as agent
for lenders (incorporated by reference from Exhibit 10.1 of our Current Report on Form 8-K, filed on
August 31, 2020).
10.9.1 First Amendment to Revolving Credit and Security Agreement dated as of December 17, 2021 among
the Company and Build-A-Bear Retail Management, Inc., as borrowers; Build-A-Bear Workshop
Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-Bear Card Services LLC and
Build-A-Bear Workshop Canada, Ltd., as guarantors; the lenders party thereto; and PNC Bank,
National Association, as agent for lenders (incorporated by reference from Exhibit 10.1 on our Current
Report on Form 8-K, filed on December 22, 2021)
10.10
Facility Construction Agreement dated December 22, 2005 between the Registrant and Duke
Construction Limited Partnership (incorporated by reference from Exhibit 10.35 to our Annual Report
on Form 10-K, for the year ended December 31, 2005)
10.11
Real Estate Purchase Agreement dated December 19, 2005 between Duke Realty Ohio and the
Registrant (incorporated by reference from Exhibit 10.36 to our Annual Report on Form 10-K, for the
year ended December 31, 2005)
11.1
Statement regarding computation of earnings per share (incorporated by reference from Note 10 of
the Registrant’s audited consolidated financial statements included herein)
21.1
List of Subsidiaries of the Registrant (incorporated by referenced to Exhibit 21.1 to our Annual Report
on Form 10-K, for the year ended February 1, 2020)
23.1
Consent of Ernst & Young LLP
31.1
Rule 13a-14(a)/15d-14(a) certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
executed by the President and Chief Executive Officer)
31.2
Rule 13a-14(a)/15d-14(a) certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
executed by the Chief Financial Officer)
32.1
Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by
the President and Chief Executive Officer)
32.2
Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by
the Chief Financial Officer)
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Extension Calculation Linkbase Document
101.DEF Inline XBRL Extension Definition Linkbase Document
101.LAB Inline XBRL Extension Label Linkbase Document
101.PRE Inline XBRL Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Management contract or compensatory plan or arrangement
68
BUILD-A-BEAR WORKSHOP, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 14, 2022
By: /s/ Sharon John
BUILD-A-BEAR WORKSHOP, INC.
(Registrant)
Sharon John
President and Chief Executive Officer
By: /s/ Voin Todorovic
Voin Todorovic
Chief Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Sharon John and Voin Todorovic, and each of them, his or her true and lawful attorneys-
in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities to sign the Annual Report on Form 10-K of Build-A-Bear Workshop, Inc. (the
“Company”) for the fiscal year ended January 29, 2022 and any other documents and instruments incidental
thereto, together with any and all amendments and supplements thereto, to enable the Company to comply with
the Securities Act of 1934, as amended, and any rules, regulations and requirements of the Securities and
Exchange Commission in respect thereof, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents and/or any of them, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
69
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has
been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signatures
/s/ Craig Leavitt
Craig Leavitt
/s/ Maxine Clark
Maxine Clark
/s/ George Carrara
George Carrara
/s/ Robert L. Dixon, Jr.
Robert L. Dixon, Jr.
/s/ Narayan Iyengar
Narayan Iyengar
/s/ Lesli Rotenberg
Lesli Rotenberg
/s/ Sharon John
Sharon John
/s/ Voin Todorovic
Voin Todorovic
Title
Non-Executive Chairman
Director
Director
Director
Director
Director
Director and President and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date
April 14, 2022
April 14, 2022
April 14, 2022
April 14, 2022
April 14, 2022
April 14, 2022
April 14, 2022
April 14, 2022
70