Build-A-Bear Workshop 2012 Annual Report Download - page 36

BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K
experience for our guests. As of March 8, 2013, we have
opened six of these stores, one new store and five remodels
or relocations. We expect to open 25 additional remodeled
locations by the end of 2013. In 2012, we also opened
one traditional store and one non-traditional store in
North America and two traditional stores in the UK. The
traditional store in North America is a reopening in a mall
that had been closed since 2010 due to flooding.
We have been aggressively renegotiating rents and
executing short term extensions to line up lease dates within
markets as part of an overall strategic plan to optimize our
store locations and market positioning. As part of this
strategy, we will continue to close underperforming stores in
conjunction with natural lease expirations and kick out
clauses, primarily in multi-store markets. In these markets, we
currently expect to maintain approximately 20% of the sales
from closing stores by transferring customers to other locations
in the same market. We closed 10 and 12 stores in fiscal
2012 and fiscal 2011, respectively. We currently anticipate
closing approximately 35 to 40 stores, including certain
non-traditional store locations, in 2013 and approximately
20 additional stores in 2014. As a result, at the end of fiscal
2013, we anticipate that we will have approximately 310
traditional stores, 251 in North America and 59 in Europe
and six non-traditional stores. In 2013 through March 8, we
have closed 15 stores.
Non-traditional Store Locations: In 2004 we began
offering merchandise in seasonal, event-based locations such
as Major League Baseball ballparks. As of December 29,
2012, we had one location each in a ballpark, a zoo, a
science center, an airport and a hospital. In 2010, we
opened our first temporary stores, which generally have lease
terms of six to eighteen months and are excluded from our
store count. These locations are intended to capitalize on
short-term opportunities in specific locations. As of
December 29, 2012, we operated four temporary stores.
Commercial Revenue: In fiscal 2004, we began entering
into license agreements pursuant to which we receive royalties
on Build-A-Bear Workshop brand products produced and sold
by third parties. These agreements generated revenue of
$1.1 million in 2012, $1.8 million in 2011 and $2.8 million
in 2010. Wholesale revenue is primarily generated under
agreements with third-parties who operate Build-A-Bear
Workshop locations or sell our product in agreed-upon
outlets. These agreements generated revenue of $1.7 million
in 2012, $2.1 million in 2011 and $2.0 million in 2010. In
addition to our normal wholesale business, in 2010, we had
two wholesale transactions totaling $6.4 million with no
gross margin.
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 year
2012 2011 2010
Beginning of period 79 63 65
Opened 17 19 10
Closed (5) (3) (12)
End of period 91 79 63
As of December 29, 2012, we had 12 master franchise
agreements, which typically grant franchise rights for a
particular country or group of countries, covering an
aggregate of 16 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 franchisees to open eight to twelve stores
in fiscal 2013. We believe there is a market potential for
approximately 300 international stores outside of the
United States, Canada, the United Kingdom and Ireland,
which we expect to be operated primarily by new and
existing franchisees.
RESULTS OF OPERATIONS
2012 Overview
While fiscal 2012 was a challenging year, with an overall
decline in comparable store sales, significant impairment
charges and a decline in store contribution, we made
significant progress on our strategic objectives. We
announced our plans to close 50 to 60 stores by the end of
2014 and introduced our innovative new store design and
reintroduced brand building national television advertising
in the United States. In the fourth quarter, we began to
see indications that our strategic plans were having the
desired impact:
• Our first six stores in the new design exceeded sales
expectations, increasing an average of 30%;
• The ten stores that were closed in 2012 transferred an
average of 20% of sales to other stores in the same
market;
• The television marketing that began in mid-October,
contributed to a significant improvement in the sales trend
in North America, with fourth quarter comparable store
sales increasing 1.5%;
• The gift of experience message in our ad campaigns also
drove a 30% increase in gift card sales in the peak fourth
quarter gifting season. We expect to see the benefit of
these redemptions in 2013; and
• We achieved cost savings of $7.5 million in 2012 which
we used to support sales-driving marketing initiatives and
to offset product cost increases.
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