Build-A-Bear Workshop(BBW) - 2023 Q3 - Quarterly Report

Part I Financial Information Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and accompanying notes Condensed Consolidated Balance Sheets Total assets decreased to $259.8 thousand as of October 29, 2022, driven by reduced cash, while inventories and stockholders' equity increased Key Balance Sheet Items (in thousands) | Financial Metric | Oct 29, 2022 (Unaudited) | Jan 29, 2022 | Oct 30, 2021 (Unaudited) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $12,023 | $32,845 | $48,501 | | Inventories, net | $88,339 | $71,809 | $61,912 | | Total current assets | $126,635 | $129,998 | $134,387 | | Total Assets | $259,801 | $266,324 | $271,998 | | Total current liabilities | $96,922 | $97,382 | $93,910 | | Total stockholders' equity | $97,098 | $93,683 | $93,064 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Q3 2022 total revenues increased to $104.5 thousand, with net income rising to $7.5 thousand or $0.51 per diluted share, reflecting strong year-over-year growth Q3 and YTD Performance Summary (in thousands, except per share data) | Metric | Thirteen Weeks Ended Oct 29, 2022 | Thirteen Weeks Ended Oct 30, 2021 | Thirty-nine Weeks Ended Oct 29, 2022 | Thirty-nine Weeks Ended Oct 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $104,480 | $95,139 | $322,827 | $281,560 | | Consolidated gross profit | $54,330 | $49,614 | $166,069 | $148,442 | | Net income | $7,455 | $5,923 | $27,475 | $23,138 | | Diluted EPS | $0.51 | $0.36 | $1.78 | $1.44 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased to $11.2 thousand for the thirty-nine weeks ended October 29, 2022, primarily due to inventory investments and significant share repurchases Cash Flow Summary for Thirty-nine Weeks Ended (in thousands) | Cash Flow Activity | Oct 29, 2022 | Oct 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,247 | $17,235 | | Net cash used in investing activities | ($6,752) | ($4,644) | | Net cash (used in) provided by financing activities | ($26,135) | $924 | | (Decrease) increase in cash | ($20,822) | $13,661 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, segment performance, stock repurchase programs totaling $75 thousand, and a credit facility amendment to a SOFR-based interest rate - The Direct-to-Consumer (DTC) segment, including retail stores and e-commerce, is the primary revenue driver, accounting for 95% of consolidated revenue for the third quarter of fiscal 2022[23][69] Segment Income Before Income Taxes (in thousands) | Segment | Thirteen Weeks Ended Oct 29, 2022 | Thirty-nine Weeks Ended Oct 29, 2022 | | :--- | :--- | :--- | | Direct-to-Consumer | $7,771 | $29,174 | | Commercial | $2,009 | $5,705 | | International Franchising | $108 | $843 | - The company completed a $25.0 thousand share buyback program and its Board of Directors authorized a new repurchase program of up to $50.0 thousand, effective through August 31, 2025[63][64] - Subsequent to the quarter's end, on November 21, 2022, the company amended its credit agreement to change the interest rate calculation from a LIBOR-based rate to a Secured Overnight Financing Rate (SOFR) based rate[77][78] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 revenue growth driven by North American retail, strategic priorities including digital transformation and retail evolution, and expectations for continued full fiscal year growth despite inflationary pressures Business Update and Strategy The company's strategy focuses on digital transformation, evolving omnichannel retail, and optimizing financial position, with expansion into non-traditional retail locations and strong e-commerce growth since 2019 - Core strategic priorities are: (1) accelerating digital transformation, (2) evolving omnichannel retail experiences, and (3) optimizing the company's strong financial position[87][89][90] - The company is expanding its retail footprint beyond traditional malls, with approximately 35% of locations now in non-traditional settings, expecting to open approximately 20 new locations in fiscal 2022[89] - While Q3 e-commerce sales declined year-over-year, they were up 105% compared to the third quarter of fiscal 2019, prior to key digital initiatives[87] Results of Operations Q3 2022 total revenues increased 9.8% to $104.5 million, driven by retail sales growth, partially offset by digital declines and currency impacts, while gross margin improved quarterly but declined year-to-date due to freight costs Q3 2022 vs. Q3 2021 Revenue Growth (in millions) | Revenue Stream | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Net retail sales | $99.2 | $91.6 | +8.3% | | Commercial revenue | $4.2 | $2.8 | +50.0% | | International franchising | $1.1 | $0.8 | +37.5% | | Total revenues | $104.5 | $95.1 | +9.8% | - The increase in retail revenue was primarily driven by higher demand in existing physical stores ($17.2 million increase), which offset a decline in digital sales ($7.0 million decrease) and negative foreign currency effects ($2.5 million decrease)[101] - Retail gross margin rate increased by 30 basis points in Q3 2022 due to leverage on fixed costs but decreased by 120 basis points for the thirty-nine week period due to significant freight cost increases[102][106] Liquidity and Capital Resources As of October 29, 2022, cash stood at $12.0 thousand, with operating cash flow decreasing to $11.2 thousand due to inventory investments and $24.2 thousand in share repurchases, while a new $50.0 thousand buyback program was authorized - Cash and cash equivalents stood at $12.0 thousand as of October 29, 2022[117] - The company repurchased $24.2 thousand of its common stock in the thirty-nine weeks ended October 29, 2022[119][125] - On August 31, 2022, a new share repurchase program of up to $50.0 thousand was authorized, effective through August 31, 2025[126] Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risk disclosures have occurred since the last annual report - There have been no material changes to the company's market risk disclosures since the last annual report[132] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of October 29, 2022, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of October 29, 2022[133] - No material changes to internal control over financial reporting were identified during the quarter[135] Part II Other Information Risk Factors No material changes to the company's previously disclosed risk factors were reported since the last annual report - No material changes to risk factors were reported since the last Annual Report on Form 10-K[136] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 336,935 shares at an average price of $14.21 per share during Q3, as part of publicly announced buyback programs Issuer Purchases of Equity Securities (Q3 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 31 - Aug 27, 2022 | 80,558 | $15.96 | | Aug 28 - Oct 1, 2022 | 256,377 | $13.66 | | Oct 2 - Oct 29, 2022 | - | - | | Total | 336,935 | $14.21 | Exhibits This section lists all exhibits filed with the Form 10-Q report, including required CEO and CFO certifications under the Sarbanes-Oxley Act - The report includes required certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[140]