Build-A-Bear Workshop 2012 Annual Report Download - page 34

BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K
Fiscal 2012 consolidated comparable store sales
decreased by 3.3%, including an 8.4% decrease in Europe
and a 2.0% decrease in North America (full year comparable
store sales are compared to the 52 week period ended
Dec. 31, 2011). We believe the primary drivers of the overall
decline in consolidated comparable store sales for the full
year were as follows:
• In the first half of 2012, we had benefit from higher
redemption rates and transaction value of our holiday gift
cards and from a promotion in the United States with
McDonald’s Happy Meals®that drove awareness of our
brand and brought traffic to our stores resulting in slightly
positive comparable store sales in North American
through the first twenty-six weeks.
• In the fiscal 2012 third quarter, we experienced a
decline in the number of transactions compared to the
2011 third quarter which benefitted from a strong
product offering that was tied to a major theatrical
release supported by studio marketing and advertising.
• In the fiscal 2012 fourth quarter, we believe our new
brand building marketing campaign in the United States
along with a return to traditional holiday product
offerings resulted in an increase in North American
comparable store sales.
• In the United Kingdom, we believe the negative economic
conditions contributed to a continued decline in consumer
sentiment and a corresponding decline in spending that
negatively impacted our comparable store sales
throughout the year.
Fiscal 2011 consolidated comparable store sales
decreased by 2.1%, including a 0.2% decrease in Europe
and a 2.5% decrease in North America (full year comparable
store sales are compared to the 52 week period ended
Jan. 1, 2011). We believe the overall decline in consolidated
comparable store sales for the full year was attributed
primarily to the following factors:
• Through the third quarter, we had experienced a 0.9%
decrease in consolidated comparable store sale. Growth
in third quarter sales, which resulted from improved
merchandise assortments and successful promotional
events, only partially offset comparable stores sales
declines in the first half of the year, which were primarily
driven by a decline in transactions and negative
consumer sentiment and spending in the UK.
• Further sales declines in the fourth quarter, attributable to
underperforming licensed movie product, resulted in a
decline for the full year.
Commercial revenue: Commercial revenue includes the
company’s transactions with other businesses, mainly through
wholesale and licensing transactions. Revenue from licensing
activities is generally based on a percentage of sales made
by licensees to third parties and is recognized at the time the
product is shipped by the licensee or at the point of sale. We
have entered into a number of licensing arrangements
whereby third parties manufacture and sell to other retailers
merchandise carrying the Build-A-Bear Workshop trademark.
Revenue from wholesale product sales includes revenue from
merchandise sold at stores operated by third parties under
licensing agreements like Landry’s restaurants. In 2010, it
also includes two transactions totaling $6.4 million with no
associated gross margin.
Franchise fees: We receive an initial, one-time franchise
fee for each master franchise agreement which is amortized to
revenue over the life of the respective franchise agreements,
which extend for periods up to 25 years. Master franchise
rights are typically granted to a franchisee for an entire
country or countries. Continuing franchise fees are based on a
percentage of sales made by the franchisees’ stores and are
recognized as revenue at the time of those sales.
As of December 29, 2012, we had 91 stores, including
17 opened and five closed in fiscal 2012, operating under
franchise arrangements in the following countries:
Germany . . . ............................. 21
Australia . . . . ............................. 14
Mexico . . . . . ............................. 10
Japan . . . ................................ 8
Denmark . . . . ............................. 8
South Africa . ............................. 6
Thailand . . . . ............................. 6
Gulf States(1) .............................. 6
Singapore . . ............................. 4
Norway . . . . ............................. 3
Sweden . . . . ............................. 3
Brazil . . . ................................ 2
Total . . . . . ............................. 91
(1) Gulf States agreement includes Kuwait, Bahrain, Qatar, Oman and the
United Arab Emirates
COSTS AND EXPENSES
Cost of merchandise sold and retail gross margin: Cost of
merchandise sold includes the cost of the merchandise,
including royalties paid to licensors of third party branded
merchandise; store occupancy cost, including store
depreciation and store asset impairment charges; cost of
warehousing and distribution; packaging; stuffing; damages
and shortages; and shipping and handling costs incurred in
shipment to customers. Retail gross margin is defined as net
retail sales less the cost of retail merchandise sold, which
excludes cost of wholesale merchandise sold.
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