Build-A-Bear Workshop 2013 Annual Report Download - page 27

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management’s Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking
statements that involve risks and uncertainties. Our actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but
are not limited to, those discussed in “Risk Factors” and elsewhere in
this Annual Report on Form 10-K. The following section is qualified in
its entirety by the more detailed information, including our financial
statements and the notes thereto, which appears elsewhere in this
Annual Report on Form 10-K.
Overview
We are the only global company that offers an interactive “make
your own stuffed animal” retail entertainment experience under the
Build-A-Bear Workshop brand, in which our guests stuff, fluff, dress,
accessorize and name their own teddy bears and other stuffed animals.
As of December 28, 2013, we operated 323 Company-owned stores and
had 86 franchised stores operating in international locations under
the Build-A-Bear Workshop brand. In addition to our stores, we sell our
products on our e-commerce Web site, buildabear.com.
We operate in three segments that share the same infrastructure,
including management, systems, merchandising and marketing, and
generate revenues as follows:
• Retail – Company-owned retail stores located in the United States,
Canada, Puerto Rico, the United Kingdom and Ireland, and a web
store;
• International Franchising – Other international stores operated
under franchise agreements; and
• Commercial – Transactions with other business partners, mainly
comprised of wholesale product sales and licensing our intellectual
property, including entertainment properties, for third-party use.
Selected financial data attributable to each segment for fiscal 2013,
2012 and 2011, are set forth in Note 16 to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K.
For a discussion of the key trends and uncertainties that have affected
our revenues, income and liquidity, see the “— Revenues,” “— Costs and
Expenses” and “— Stores” subsections of this Overview, along with the
"Risk Factors" and "Results of Operations."
We believe that we have an appealing retail store concept that, for
North American stores open for the entire year, averaged $1.1 million
in fiscal 2013, and $1.0 million in fiscal 2012 and 2011in net retail sales
per store. Consolidated store contribution consists of store location net
retail sales less cost of product, marketing and store related expenses.
Store depreciation, amortization and impairment and non-store
general and administrative expenses are excluded as are our web store
and temporary and seasonal locations. See “— Non-GAAP Financial
Measures” for a reconciliation of store contribution to net loss. Store
contribution as a percent of store location net retail sales was 15.8% for
fiscal 2013, 12.7% for fiscal 2012 and 14.7% for fiscal 2011. Total company
net loss as a percentage of total revenues was 0.6% for fiscal 2013, 12.9%
for fiscal 2012 and 4.3% for fiscal 2011.
Our 2013 performance demonstrated progress on our turnaround
plan and our objective to achieve sustainable, long-term profitable
growth as we hired a new chief executive, executed a significant real
estate strategy and implemented stringent cost controls throughout
the organization. In 2012, our results were negatively impacted by the
declining sales in the UK. In North America, the 2012 results reflected
the early results of turnaround efforts, increased costs for marketing,
newly imagined store design remodels and openings and store closings.
In 2011, our results reflected stabilizing economic trends and modest
mall traffic increases but continuing low levels of consumer confidence.
In 2011, our store contribution percentage was essentially flat with
2010, as declining sales were offset by lower store expenses, specifically
payroll and supplies.
Our 2014 plan builds on the progress we made in 2013 in implementing
our key strategies. We plan to continue to improve store productivity
and profitability through our real estate optimization efforts, reposition
our marketing programs to refine the consumer value equation and
build on core competencies to lay the groundwork to further leverage
the strength of our Build-A-Bear brand. Additionally we intend to work
aggressively on expense rationalization as we continue to align our cost
structure with our smaller store base and value engineer our products,
along with an end to end review of our supply chain.
In 2013, we reduced cost of sales and selling, general and administrative
expenses by $14 million, including one-time charges. These savings
resulted from our real estate optimization strategies, aligning overhead
costs with a smaller store base and continued aggressive expense
rationalization. This comes after savings of $25 million in 2009, $3
million in 2011 and $7.5 million in 2012. We ended fiscal 2013 with no
borrowings under our bank loan agreement and with $45 million in
cash and cash equivalents after investing $19 million in capital projects.
Following is a description and discussion of the major components of
our statement of operations:
Revenues
Net retail sales: Net retail sales are revenues from retail sales (including
our web store and other non-store locations), are net of discounts,
exclude sales tax, include shipping and handling costs billed to
customers, and are recognized at the time of sale. Revenues from gift
cards are recognized at the time of redemption. Our guests use cash,
checks, gift cards and third party credit cards to make purchases. We
classify stores as new, non-comparable and comparable stores. Stores
enter the comparable store calculation in their thirteenth full month
BUILD- A-BEAR WORKSHOP, INC. 2013 FORM 10-K 17