Build-A-Bear Workshop 2009 Annual Report Download - page 35

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
we have opened or acquired 175 company-owned stores
since the beginning of fiscal 2005 had been the primary
reasons for our net income increasing in fiscal 2006 and
fiscal 2005.
In 2008 and 2009, our results reflect the challenging
retail environment – economic recession, declining mall traffic,
and slowing consumer spending – factors impacting many
retailers and particularly our company given the discretionary
nature of our products and our experience. Our total store
contribution declined, primarily due to 13.4% and 14.0%
decreases in comparable store sales in 2009 and 2008,
respectively. This decrease in total store contribution was
partially offset by approximately $25 million in cost
reductions in North America in 2009.
Our 2010 plan balances our long term business goals
while recognizing the near term challenges of the retail
environment. While our full market potential in North America
remains more than 350 stores, we will open one new store in
North America in 2010, the same as in 2009. In the United
Kingdom and Ireland, we believe our full market potential is
approximately 70 locations and we plan to open two new
stores in 2010, as compared to no new European stores in
2009. Slowing new store growth allows us to refocus on our
business and align all operations around our goals of new
guest acquisition and guest retention aimed at improving our
comparable stores sales performance, while also building our
long term brand value. Our growth strategy is to develop and
expand the reach of the Build-A-Bear Workshop brand
through product innovation and the full integration of product,
marketing and operations to create a sense of urgency to
drive traffic, increase conversion and improve sales.
Additional toy products outside of our core plush animals,
yet consistent with our interactive and hands-on experience,
will be added to our assortment. We plan to continue to grow
our virtual world engagement through buildabearville.com,
as well as improve our online and e-commerce business.
We intend to refine our marketing programs balancing
communication with new and existing guests and place
emphasis on our product newness and collectability, a
fundamental strength of our brand. Recognizing the severity
of the economic recession, we implemented cost reduction
initiatives that resulted in approximately $25 million in pre-tax
savings in 2009. We ended fiscal 2009 with no borrowings
under our bank loan agreement and with $60 million in cash
and cash equivalents after investing $8 million in capital
projects including one new store. While our current sales
trends reflect the continuing decline in consumer spending, we
believe that our business strategies, superior store contribution
model, strong cash flow and flexible capital structure will
deliver long term sales and earnings growth.
Following is a description and discussion of the major
components of our statement of operations:
REVENUES
Net retail sales: Net retail sales are revenues from retail sales
(including our webstore and other non-store locations), are net
of discounts, exclude sales tax, include shipping and handling
costs billed to customers, and are recognized at the time of
sale. Revenues from gift cards are recognized at the time of
redemption. Our guests use cash, checks, gift cards and third
party credit cards to make purchases. We classify stores as
new or comparable stores and do not include our webstore
or seasonal, event-based locations in our store count or in our
comparable store calculations. Stores enter the comparable
store calculation in their thirteenth full month of operation and
as such, European stores were not included for 2007. If a
store relocation or remodel results in a significant change in
square footage, the net retail sales for that location are
excluded from comparable store sales calculations until the
thirteenth full month of operation after the date of the change.
In the fiscal 2008 third quarter, we announced plans to close
the Friends 2B Made concept. As of January 2, 2010, all
Friends 2B Made locations were closed. All but one of these
locations were inside or adjacent to a Build-A-Bear Workshop
store and shared common store management, employees and
infrastructure. Other than our stand-alone store in Ontario,
California, these locations were considered expansions of
the existing Build-A-Bear Workshop store and were not
considered an addition to our total store count. The net retail
sales of these expanded Build-A-Bear Workshop stores were
excluded from comparable store sales calculations until the
thirteenth full month of operation after the date of the
expansion.
We have an automated loyalty program with a frequent
shopper reward feature in North America, the Stuff Fur Stuff
club, whereby guests enroll in the program and receive one
point for every dollar or partial dollar spent and after
reaching 100 points receive a $10 discount on a future
purchase. An estimate of the obligation related to the
program, based on historical redemption rates, is recorded as
deferred revenue and a reduction of net retail sales at the time
of purchase. The deferred revenue obligation is reduced, and
a corresponding amount is recognized in net retail sales, in
the amount of and at the time of redemption of the $10
discount. As the reward certificates can be earned or
redeemed at any of our store locations, we account for
changes in the deferred revenue account at the total company
level only. Therefore, when we refer to net retail sales by
location, such as comparable stores or new stores, these
amounts do not include any changes in the deferred revenue
amount. See “Critical Accounting Estimates” for additional
details on the accounting for the deferred revenue program.
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