Build-A-Bear Workshop 2009 Annual Report Download - page 23

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
discretionary products, changes in media strategies, online
entertainment, children’s media consumption and play
patterns, competitive plush animal products and lower than
expected customer purchases of select licensed movie
products introduced in the fiscal 2007 second quarter. We
believe that the decrease in 2006 was primarily the result of
changing customer preferences, a decline in customer traffic,
and the more difficult macro economic conditions generally
impacting consumer confidence and spending patterns. In
2005, ongoing programs in advertising were successful in
maintaining our comparable store sales levels. We believe
the principal factors that will affect comparable store results
include the following:
• the continuing appeal of our concept;
• the effectiveness of our marketing efforts to attract new
and repeat guests;
• consumer confidence and general economic conditions;
• our ability to anticipate and to respond, in a timely
manner, to consumer trends;
• the continued introduction and expansion of our
merchandise offerings;
• the impact of new stores that we open in existing
markets;
• mall traffic;
• competition for product offerings including in the online
space;
• the timing and frequency of national media appearances
and other public relations events; and
• weather conditions.
As a result of these and other factors, we may not be
able to generate or achieve comparable stores sales growth
in the future. If we are unable to do so, our results of
operations could be significantly harmed and we may be
required to record significant impairment charges.
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
growth and profitability could be harmed.
We lease all of our 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, at either the
landlord’s options or ours. 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 mall rules and the exercise of
discretion by our landlords on various matters within the
malls. In addition, the lease for our store in the Downtown
Disney®District at the Disneyland®Resort in Anaheim,
California provides that the landlord may terminate the lease
at any time, subject to the payment of an early termination
fee. As a result, we cannot assure you that the landlord will
not exercise its right to terminate this lease.
In addition, most of our leases will expire within the next
ten years and our initial leases are near completion and do
not contain options to renew. We may not be offered a lease
renewal by our landlord, may not be able to renew leases
under favorable economic terms or maintain our existing store
location thereby requiring additional capital expenditure to
move the store location within the mall. Those locations may
be in parts of the mall that have less traffic or be positioned
further from our desired co-tenants and our ongoing sales and
profitability results may be negatively affected. The terms of
new leases may not be as favorable, increasing store
expenses and impacting overall profitability.
Our growth strategy requires us to operate a significant
number of stores in the United States, Canada, the United
Kingdom, Ireland and France each year as well as open new
store locations in these countries. If we are not able to operate
these stores or to effectively manage the growth of additional
stores, it could adversely affect our ability to grow and could
significantly harm our profitability.
Our growth will largely depend on our ability to operate our
stores successfully in the United States, Canada, the United
Kingdom, Ireland and France as well as open additional
stores in those countries. We opened 25, 50, and 35 stores
in fiscal 2008, 2007 and 2006, respectively. We slowed
new store growth in fiscal 2009 to include opening one new
store in North America and no new stores in Europe and plan
to continue a slowed expansion in 2010. Our ability to
identify and open new stores in future years in desirable
locations and operate such new stores profitably is a key
factor in our ability to grow successfully. We cannot assure
you as to 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
stores can be profitably operated. We have not always
succeeded in identifying desirable locations or in operating
our stores successfully in those locations. For example, as
of January 2, 2010, we have closed four stores since our
inception (not including four stores that we closed in
connection with our 2006 acquisition of Amsbra and The
Bear Factory). We may decide to close other stores in the
future. In addition, our ability to open new stores and manage
our growth will be limited to some extent by market saturation
of our stores. Our ability to open new stores and to manage
our growth also depends on our ability to:
• negotiate acceptable lease terms, including desired
tenant improvement allowances;
• finance the preopening costs, capital expenditures and
working capital requirements of the stores;
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