Build-A-Bear Workshop 2014 Annual Report Download - page 24

and in Europe. Any significant interruption in the operation of the
distribution centers due to natural disasters or severe weather, as
well as events such as fire, accidents, power outages, system failures
or other unforeseen causes could damage a significant portion of our
inventory. These factors may also impair our ability to adequately
stock our stores and could decrease our sales and increase our costs
associated with our supply chain.
Our profitability could be adversely aected by fluctuations in
petroleum products prices.
The profitability of our business depends to a certain degree
upon the price of petroleum products, both as a component of the
transportation costs for delivery of inventory from our vendors
to our stores and as a raw material used in the production of our
animal skins and stung. For example, our results in fiscal 2011 were
impacted by significant increases in fuel surcharges due to higher
petroleum products prices. We are unable to predict what the price
of crude oil and the resulting petroleum products will be in the future.
We may be unable to pass along to our customers the increased
costs that would result from higher petroleum prices. Therefore, any
such increase could have an adverse impact on our business and
profitability.
Our plans to leverage the Build-A-Bear brand to drive strategic
expansion into new sales and profit streams may not be successful.
Our objective to achieve sustained profitable growth depends in part
on our ability to use our brand and existing infrastructure as a base
to drive new lines of business. For example, we currently expect to
re-launch an out-bound licensing program in the future. If we are
unable to develop these new lines of business profitably, we may not
be able to achieve our long-term objectives.
Our market share may be adversely impacted at any time by a
significant variety of competitive threats.
We operate in a highly competitive environment characterized by low
barriers to entry. We compete against a diverse group of competitors.
Because we are primarily mall-based, we see our competition as
those mall-based retailers that compete for prime mall locations,
including various apparel, footwear and specialty retailers. As a
retailer whose signature product is a stued animal that is typically
purchased as a toy or gift, we also compete with big box retailers
and toy stores, as well as manufacturers that sell plush toys. Since
we oer our guests an experience as well as merchandise, we also
view our competition as any company that competes for our guests’
time and entertainment dollars, such as movie theaters, restaurants,
amusement parks and arcades. In addition, there are several small
companies that operate “make your own” teddy bear and stued
animal experiences in retail stores and kiosks. Although we believe
that currently none of these companies oers the breadth and depth
of the Build-A-Bear Workshop products and experience, we cannot
assure you that they will not compete directly with us in the future.
Many of our competitors have longer operating histories, significantly
greater financial, marketing and other resources, and greater name
recognition. We cannot assure you that we will be able to compete
successfully with them in the future, particularly in geographic
locations that represent new markets for us. If we fail to compete
successfully, our market share and results of operations could be
materially and adversely aected.
We may suer negative publicity or a decrease in sales or
profitability if the products from other companies that we sell in our
stores do not meet our quality standards or fail to achieve our sales
expectations.
We may expand our product assortment to include products
manufactured by other companies. If sales of such products do not
meet our expectations or are impacted by competitors’ pricing, we
may have to take markdowns or employ other strategies to liquidate
the product. If other companies do not meet quality or safety
standards or violate any manufacturing or labor laws, we may suer
negative publicity and may not realize our sales plans.
Poor global economic conditions could have a material adverse
eect on our liquidity and capital resources.
Although we believe that our capital structure and credit facilities
will provide sucient liquidity, there can be no assurance that our
liquidity will not be aected by changes in the capital markets or that
our capital resources will at all times be sucient or at an acceptable
cost to satisfy our liquidity needs. Capital market conditions may
aect the renewal or replacement of our credit agreement, which
was originally entered into in 2000 and has been extended annually
since then and currently expires December 31, 2016.
Risks Related to Owning Our Common Stock
Fluctuations in our quarterly results of operations could cause the
price of our common stock to substantially decline.
Retailers generally are subject to fluctuations in quarterly results.
Our operating results for one period may not be indicative of results
for other periods, and may fluctuate significantly due to a variety of
factors, including:
• the profitability of our stores;
• increases or decreases in comparable store sales;
• changes in general economic conditions and consumer spending
patterns;
• seasonal shopping patterns, including whether the Easter holiday
occurs in the first or second quarter and other school holiday
schedules;
• the impact of a 53rd week in our fiscal year which occurs
approximately every six years, including fiscal 2014;
12 BUILD-A-BEAR WORKSHOP, INC. 2014 ANNUAL REPORT