Build-A-Bear Workshop 2011 Annual Report Download - page 38

BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K
Gross margin. Total gross margin, calculated as net retail
sales and commercial revenues less cost of merchandise sold,
increased to $158.9 million for fiscal 2010 from
$145.0 million for fiscal 2009, an increase of $13.8 million,
or 9.5%. Retail gross margin increased to $155.1 million in
fiscal 2010 from $142.6 million in fiscal 2009, and increase
of $12.6 million or 8.8%. As a percentage of net retail sales,
retail gross margin increased to 40.1% for fiscal 2010 from
36.7% for fiscal 2009, an increase of 340 bps. This
improvement in margin was primarily attributable to a
110 basis point improvement resulting from the significant
reduction in asset impairment charges in 2010 as compared
2009. Additionally, we achieved 100 basis points of
improved leverage on fixed occupancy costs and a 70 basis
point improvement in merchandise margin along with other
improvements in distribution and purchasing.
Selling, general and administrative. Selling, general and
administrative expenses were $163.9 million for fiscal 2010
as compared to $162.7 million for fiscal 2009, an increase
of $1.2 million, or 0.7%. As a percentage of total revenues,
selling, general and administrative expenses were 40.8% for
fiscal 2010, compared to 41.1% for fiscal 2009. The dollar
increase was primarily attributable to $1.6 million in charges
related to the closure of our stores in France and increases in
corporate payroll costs primarily related to a bonus. These
increases were partially offset by marketing savings and
improved leverage on store salaries and other fixed
overhead costs.
Store preopening. Store preopening expense was
$0.7 million for fiscal 2010 as compared to $0.1 million for
fiscal 2009. The increase was primarily due to opening four
stores in fiscal 2010 as compared to one in 2009. These
amounts include preopening rent expense of $0.1 million for
2010 and $9,000 for fiscal 2009. Preopening expenses
include expenses for stores that have opened, including
temporary locations, as well as some expenses incurred for
stores that will be opened at a later date.
Losses from investment in affiliate. Losses from
investment in affiliate of $9.6 million in fiscal 2009 are
losses related to our investment in Ridemakerz. The losses
incurred in 2009 are comprised of a $7.5 million non-cash
charge of Ridemakerz net loss allocations, a $1.0 million
non-cash impairment charge and a $1.1 million write-off of
Ridemakerz outstanding receivable. As the investment was
written down to zero in 2009, no loss allocations charges
were recorded in 2010.
Interest expense (income), net. Interest income, net of
interest expense, was $0.3 million for fiscal 2010 as
compared to $0.1 million for fiscal 2009.
Provision for income taxes. The income tax benefit was
$2.6 million for fiscal 2010, compared to $11.4 million for
fiscal 2009. The effective rate was 104.2% in 2010 and
47.7% for fiscal 2009. The increase in the effective tax rate
was primarily attributable to a release of valuation allowances
on net operating loss carryforwards associated with our
France operations as well as the impact of lower taxes in
foreign jurisdictions and the release of tax reserves.
NON-GAAP FINANCIAL MEASURES
We use the term “store contribution” throughout this Annual
Report on Form 10-K. Store contribution consists of income
before income tax expense, interest, store depreciation and
amortization, store preopening expense, store closing
expense and general and administrative expense, excluding
franchise fees, income from licensing activities and
contribution from our web store and seasonal and event-
based locations. This term, as we define it, may not be
comparable to similarly titled measures used by other
companies and is not a measure of performance presented in
accordance with U.S. generally accepted accounting
principles (GAAP).
We use store contribution as a measure of our stores’
operating performance. Store contribution should not be
considered a substitute for net income, net income per store,
cash flows provided by operating activities, cash flows
provided by operating activities per store, or other income or
cash flow data prepared in accordance with U.S. GAAP.
We believe store contribution is useful to investors in
evaluating our operating performance because it, along with
the number of stores in operation, directly impacts
our profitability.
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