Build-A-Bear Workshop 2011 Annual Report Download - page 21

BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K
2007 second quarter. 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 store openings, closures and relocations 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.
Our strategy requires us to operate a significant number of
stores in the United States, Canada, the United Kingdom and
Ireland as well as close, relocate and open store locations in
these countries. If we are not able to operate these stores or to
effectively manage the overall portfolio of our 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 and Ireland and optimizing store productivity
and profitability by closing select stores, relocating and
downsizing other stores and remodeling and opening select
stores in a new design. We opened 25, 50, and 35 stores in
fiscal 2008, 2007 and 2006, respectively. Since then we
slowed net store growth considerably with one net closure in
both 2009 and 2010 and two net openings in 2011,
exclusive of temporary locations. We plan to continue this
trend in 2012 with fifteen to twenty strategic closures. Our
ability to manage our portfolio of stores in future years in
desirable locations and operate stores profitably, particularly
in multi-store markets, 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 or relocated 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, in 2011 and
2010, we closed five and four locations, respectively, prior to
the expiration of their respective leases. Prior to 2010, we had
closed four stores since our inception (excluding 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 portfolio 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 costs of closing, relocating and opening
stores, including, severance and termination fees for store
closures and capital expenditures and working capital
requirements of the new and relocated stores;
• manage inventory to meet the needs of new and existing
stores on a timely basis;
• hire, train and retain qualified store personnel;
• develop cooperative relationships with our landlords; and
• successfully integrate new stores into our
existing operations.
In July 2005, we opened our flagship store in
New York City. This store is much larger than our typical mall-
based stores and as such, we may be unable to generate
revenues from this store at a level that justifies keeping the
store open. Closing this store could not only have an adverse
impact on our profitability, as the costs of opening this store
were much larger than those for a typical store, but, as our
flagship store, it could also have an adverse impact on the
Build-A-Bear Workshop brand and consumer perception of
our brand.
Increased demands on our operational, managerial and
administrative resources as a result of our store strategy could
cause us to operate our business less effectively, which in turn
could cause deterioration in our profitability. Additionally,
closing multiple stores could have an adverse impact on the
Build-A-Bear Workshop brand and consumer perception of
our brand.
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, which may be 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
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