Build-A-Bear Workshop 2014 Annual Report Download - page 30

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
dier materially from the results discussed in the forward-looking
statements. Factors that might cause such a dierence 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 oers an interactive “make
your own stued animal” retail entertainment experience under
the Build-A-Bear Workshop brand, in which our guests stu, flu,
dress, accessorize and name their own teddy bears and other
stued animals. As of January 3, 2015, we operated 324 Company-
owned stores and had 71 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 sites,
buildabear.com and buildabear.co.uk.
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 two
web stores;
• 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 2014,
2013 and 2012, 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
aected 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 $1.2 million
in fiscal 2014, $1.1 million in fiscal 2013, and $1.0 million in fiscal 2012 in
net retail sales per store. Consolidated store contribution consists of
store location net retail sales less cost of product, marketing and store
related expenses. Non-store general and administrative expenses are
excluded as are our web stores, locations not open for the full fiscal
year and deferred revenue adjustments. See “— Non-GAAP Financial
Measures” for a reconciliation of store contribution to net income
(loss). Store contribution as a percent of store location net retail sales
was 16.3% for fiscal 2014, 12.1% for fiscal 2013 and 8.6% for fiscal 2012.
Consolidated net income (loss) as a percentage of total revenues was
3.7% for fiscal 2014, (0.6)% for fiscal 2013, (12.9)% for fiscal 2012.
We believe that our 2014 improvement is a result of the successful and
consistent implementation of our key strategies of optimizing real
estate, resetting the consumer value equation and rationalizing our
expense structure. For the fiscal year, we improved North American
sales per square foot to $409, expanded consolidated retail gross
margin by 450 basis points and reduced the number of unprofitable
stores in North America to less than 2%. Our 2013 performance
demonstrated progress on our turnaround plan and our objective
to achieve sustainable, long-term profitability 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 eorts, increased costs for marketing, store remodels and
openings and store closings.
Our 2015 plan builds on the progress we made in 2014 and 2013 in
implementing our key strategies, with a combination of continuous
improvement of these initiatives and strategic expansion into additive
opportunities. We plan to continue to improve our real estate model
through selective new high-potential openings, a systematic refresh
of our store base and strategic international expansion. We plan to
continue to drive core consumer business and strategically expand
our business with consumers over 12 years old. We expect to do this
more profitably as we continue to improve the value engineering of
products and implementing new systems that facilitate sales growth
and increase eciency. Additionally, we intend to develop more
proprietary products along with re-launching an out-bound licensing
program.
We ended fiscal 2014 with no borrowings under our bank loan
agreement and with $65.4 million in cash and cash equivalents after
investing $10.9 million in capital projects. Throughout the year, we
spent $3.4 million repurchasing shares of our common stock.
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
18 BUILD-A-BEAR WORKSHOP, INC. 2014 ANNUAL REPORT