Build-A-Bear Workshop 2009 Annual Report Download - page 38

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
On April 2, 2006 we acquired all of the outstanding
shares of The Bear Factory Limited, a stuffed animal retailer in
the United Kingdom and Ireland, and Amsbra Limited, our
former United Kingdom franchisee. We are currently
operating 36 of the acquired stores, having permanently
closed four locations during transition. We currently operate
50 stores in the United Kingdom, one store in Ireland and
three stores in France.
The Friends 2B Made stores are not included in the
number of store openings in fiscal 2009, 2008 or 2007
as noted above but rather are considered expansions of
Build-A-Bear Workshop stores. In the fiscal 2008 third
quarter, we announced plans to close the Friends 2B Made
concept; concept closure was completed in the fiscal 2009
third quarter.
In fiscal 2009, we opened one Build-A-Bear Workshop
store in North America and none in the United Kingdom.
In fiscal 2010, we anticipate opening one Build-A-Bear
Workshop store in North America and two in the United
Kingdom. We believe there is a market potential for at least
350 Build-A-Bear Workshop stores in the United States, Puerto
Rico and Canada and 70 stores in the United Kingdom and
Ireland.
Non-store locations: In 2004 we began offering
merchandise in seasonal, event-based locations such as Major
League Baseball ballparks. We expect to expand our future
presence at select seasonal locations contingent on their
availability. As of January 2, 2010, we had a total of four
ballpark locations. We also opened up our first store in a
science center during fiscal 2007 and our first store in a zoo
during fiscal 2006.
International franchise revenue: Our first franchisee
location was opened in November 2003. The number of
international, franchised stores opened and closed for the
periods presented below can be summarized as follows:
Fiscal
2009
Fiscal
2008
Fiscal
2007
Beginning of period 62 53 34
Opened 10 16 22
Closed (7) (7) (3)
End of period 65 62 53
As of January 2, 2010, we had 14 master franchise
agreements, which typically grant franchise rights for a
particular country or countries, covering 20 countries. In the
ordinary course of business, we anticipate signing additional
master franchise agreements in the future and terminating
other such agreements. We expect our current and future
franchisees to open three stores in fiscal 2010, net of
closures. We believe there is a market potential for
approximately 300 franchised stores outside of the United
States, Canada, the United Kingdom, Ireland and France.
Licensing revenue: In fiscal 2004, we began entering into
license agreements pursuant to which we receive royalties on
Build-A-Bear Workshop brand products. These agreements
generated revenue of $2.5 million in 2009, $2.7 million in
2008 and $2.6 million in 2007. We anticipate entering into
additional license agreements in the future.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated,
selected statement of operation data expressed as a
percentage of total revenues, except where otherwise
indicated. Percentages will not total due to cost of
merchandise sold being expressed as a percentage of net
retail sales and rounding:
Fiscal 2009 Fiscal 2008 Fiscal 2007
Revenues:
Net retail sales 98.5% 98.5% 98.7%
Franchise fees 0.9 0.9 0.8
Licensing revenues 0.6 0.6 0.5
Total revenues 100.0 100.0 100.0
Costs and expenses:
Cost of merchandise
sold(1) 63.3 58.7 53.3
Selling, general, and
administrative 41.0 39.7 37.4
Store preopening —0.5 0.9
Store closing 0.2 0.6 —
Losses from investment
in affiliate 2.4 ——
Interest expense
(income), net —(0.2) (0.3)
Total costs and expenses 106.0 98.5 92.6
Income (loss) before
income taxes (6.0) 1.5 7.4
Income tax expense
(benefit) (2.9) 0.6 2.6
Net income (loss) (3.2)% 1.0% 4.7%
Gross margin (%)(2) 36.7% 41.3% 44.7%
(1) Cost of merchandise sold is expressed as a percentage of net retail sales.
(2) Gross margin represents net retail sales less cost of merchandise sold, which
includes store asset impairment charges in 2009 and 2008. Gross margin
percentage represents gross margin divided by net retail sales.
Fiscal Year Ended January 2, 2010 (52 weeks) Compared
to Fiscal Year Ended January 3, 2009 (53 weeks)
Total revenues. Net retail sales decreased to $388.6
million for fiscal 2009 from $461.0 million for fiscal 2008,
a decrease of $72.4 million, or 15.7%. Sales from new stores
contributed an $11.0 million increase in net retail sales.
Offsetting these increases, comparable store sales decreased
$55.7 million, or 13.4% and a $10.0 million impact of
foreign currency exchange rates. Other changes in net retail
sales totaled $17.7 million and included the impact of the
53rd week in fiscal 2008, changes in deferred revenue,
sales from non-store locations, and sales over the Internet.
Revenue from international franchise fees decreased to
$3.4 million for fiscal 2009 from $4.2 million for fiscal 2008,
a decrease of $0.8 million. This decrease was primarily due
to the global economic slowdown. Licensing revenue was
28