Build-A-Bear Workshop 2015 Annual Report Download

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BUILDABEAR WORKSHOP, INC. | 2015 ANNUAL REPORT
A Little More Heart
Goes A Long Way

Table of contents

  • Page 1
    A Little More Heart Goes A Long Way BUILD-A-BEAR WORKSHOP, INC. | 2015 ANNUAL REPORT

  • Page 2
    ... friends at Build-A-Bear Workshop stores around the globe. Our now iconic heart ceremony that occurs at the "Stuff Me" station builds an emotional connection with consumers that has become an earmark of our powerful brand. The Build-A-Bear experience elicits great memories for kids of all ages and...

  • Page 3
    ... our future with the introduction and opening of 11 stores in a re-invented retail format called the "Discovery Store." This new design, which we expect to rapidly deploy over the next few years, features a refreshed brand look and has delivered double-digit sales growth versus heritage stores since...

  • Page 4
    ... In 2013, we began our turnaround plans to return our company to sustained profitability through the execution of our MORE strategic plan. +820 02 Our MORE Plan We believe we can increasingly monetize the Build-A-Bear brand by evolving our business model to appeal to MORE people with MORE products...

  • Page 5
    ..., which was designed to drive overall sales productivity and refresh an aged brand look. We created a focal point using our most unique selling proposition, the stuffing process and heart ceremony, by placing our new high-impact round stuffer at the front and center of our store, opening up valuable...

  • Page 6
    ... our Merry Mission property, introduced in 2014, with our new Glisten reindeer character. Glisten became our top selling product in the 2015 fourth quarter. These collections were supported with "play beyond the plush," including related apps, games, music or videos that have garnered more than 10...

  • Page 7
    RETAIL GROSS MARGIN AS A PERCENTAGE OF NET RETAIL SALES 2012 2013 2014 2015 38.9% 41.1% 45.6% 47.1% BUILD-A-BEAR WORKSHOP, INC. | 2015 ANNUAL REPORT 05

  • Page 8
    Build-A-Bear is a powerful brand with the potential to be MORE than it has ever been. 87% 06 * The Brand Appeal rating for Build-A-Bear Workshop reached 87% in 2015, the highest level ever reported for our brand. *E-Poll Marketing (2015, U.S.)

  • Page 9
    ... growth with a continued disciplined focus and the execution of our MORE strategy. er gen tigl "D r l brand ationa s es " ME PRE-TAX INCOME (LOSS) (dollars in millions) 2012 2013 2014 2015 $(48.4) $(2.1) $16.0 $17.9 BUILD-A-BEAR WORKSHOP, INC. | 2015 ANNUAL REPORT N E W " H EA RM E" 07

  • Page 10
    ... net retail sales. COMPANY-OWNED STORES (Number of stores as of January 2, 2016) U.S. & P.R. 256 U.K. Canada Ireland We started to execute our real estate optimization strategy as a part of our turnaround plans in late 2012. As a 57 13 2 Total continuation of that plan, in fiscal 2015 we opened...

  • Page 11
    FINANCIAL RESULTS Form 10-K BUILD-A-BEAR WORKSHOP, INC. | 2015 ANNUAL REPORT

  • Page 12
    ... Commission file number: 001-32320 BUILD-A-BEAR WORKSHOP, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 1954 Innerbelt Business Center Drive St. Louis, Missouri (Address of Principal Executive Offices) (314) 423...

  • Page 13
    ... Stockholder Matters Certain Relationships and Related Transactions and Director Independence Principal Accountant Fees and Services 29 30 30 30 30 PART IV Item 15. Exhibits and Financial Statement Schedules Exhibit Index Signatures 31 47 51 2 BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT

  • Page 14
    ...; our future capital expenditures; our anticipated rate of store relocations, openings and closures; and our anticipated costs related to store relocations, openings and closures. These statements are only predictions based on our current expectations and projections about future events. Because...

  • Page 15
    ... a specialty retailer offering a "make your own stuffed animal" interactive retail-entertainment experience. As of January 2, 2016, we operated 329 company-owned retail stores in the United States, Canada, the United Kingdom, Ireland and Denmark, including 269 Build-A-Bear Workshop® stores in the...

  • Page 16
    ... our employees is good. Competition We view the Build-A-Bear Workshop store experience as a distinctive combination of entertainment and retail with limited direct competition. Because our signature product is a stuffed animal, we compete with toy retailers, such as Wal-Mart, Toys "R" Us, Target and...

  • Page 17
    ....gov. Our Annual Reports to shareholders, press releases and investor updates are also available on our Web site, free of charge, in the Investor Relations section or by writing to the Investor Relations department at World Bearquarters, 1954 Innerbelt Business Center Dr., St. Louis, MO 63114. ITEM...

  • Page 18
    .... We depend on information systems to process transactions, manage inventory, operate our Web sites, purchase, sell and ship goods on a timely basis, and maintain cost-efficient operations. There is a risk that we could experience a business interruption, theft of information, or reputational damage...

  • Page 19
    ...to close other stores in the future. In June 2015, we closed a flagship store in New York City. Because this store had much larger annual sales than our typical mall-based stores, closing this store had an adverse impact on our revenues. Additionally, in 2015 we operated twelve stores located within...

  • Page 20
    ...increase the cost of products we purchase from overseas vendors. The pricing of our products in our stores may also be affected by changes in foreign currency rates and require us to make adjustments which would impact our revenue and profit in various markets. We may suffer negative publicity or be...

  • Page 21
    ... manage our international franchises, attract new franchisees or if the laws relating to our international franchises change, our growth and profitability could be adversely affected and we could be exposed to additional liability. As of January 2, 2016, there were 77 Build-A-Bear Workshop...

  • Page 22
    ... operate "make your own" teddy bear and stuffed animal experiences in retail stores and kiosks. Although we believe that none of these companies currently offer the breadth and depth of the Build-A-Bear Workshop products and experience, we cannot assure you that they will not compete directly with...

  • Page 23
    ... the investment community, then the market price of our common stock could decline substantially. Fluctuations in our operating results could reduce our cash flow and we may be unable to repurchase shares at all or at the times or in the • • 12 BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT

  • Page 24
    ....44 Fiscal 2015 Low $ 18.25 $ 15.29 $ 15.60 $ 11.18 $ $ $ $ Fiscal 2014 High Low 9.49 $ 7.30 15.43 $ 9.34 14.53 $ 10.07 21.22 $ 12.17 As of March 11, 2016, the number of holders of record of the Company's common stock totaled approximately 2,620. BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT 13

  • Page 25
    ... quarter. Our equity incentive plans provide that the value of shares delivered to us to pay the withholding tax obligations is calculated at the closing trading price of our common stock on the date the relevant transaction occurs. In February 2015 and July 2015, the board of directors adopted new...

  • Page 26
    ... and related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report on Form 10-K. Fiscal Year(1) (Dollars in thousands, except share and per share data) Statement of operations data: Total revenues Costs and...

  • Page 27
    ... foreign exchange. Store locations are considered comparable beginning in their thirteenth full month of operation. Comparable sales percentage changes for 2015 are based on net retail sales as compared to the 52-week period ended January 3, 2015. 16 BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT

  • Page 28
    ... 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 sites, buildabear.com and buildabear.co.uk. We operate in three segments that share the same infrastructure, including management, systems...

  • Page 29
    ... sites), 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...

  • Page 30
    ..., targeting locations near kid-centric tourist destinations. We expect these locations to drive incremental sales and to play an important role in the management of our product lifecycle. As of January 2, 2016, we operated 15 temporary and six outlet stores. BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL...

  • Page 31
    ... signing additional master franchise agreements in the future and terminating other such agreements. We believe there is a market potential for approximately 300 international stores outside of the United States, Canada, the United Kingdom, Ireland and Denmark. In 2016, our international strategy...

  • Page 32
    ... variable costs related to the 53rd week and lower management transition expenses in fiscal 2015, partially offset by investments to advance the Company's long-term strategy. As a result of the calendar shift in fiscal 2014, fiscal 2015 had one less week of sales which deleveraged selling, general...

  • Page 33
    ...384 299,210 (26,549) (4,979) Other revenues from external customers (4) Store location net retail sales Store contribution as a percentage of store location net retail sales Total net income as a percentage of total revenues $ 267,682 20.3% 8.2% 22 BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT

  • Page 34
    ...0.29 316 Fourth Quarter (2) 131.5 67.9 0.8 11.8 0.68 0.67 324 Retail gross margin represents net retail sales less cost of retail merchandise sold. The fiscal 2014 fourth quarter included 14 weeks. All other quarters presented included 13 weeks. BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT 23

  • Page 35
    ... in 2015 related primarily to the continued installation and upgrades of central office information technology systems, the opening of 25 new stores, the remodeling or relocation of eight stores and the net purchases of short-term investments. Cash used in investing activities in 2014 related...

  • Page 36
    ... be required to make deposits and rent guarantees to secure new leases as we expand. Real estate taxes also change according to government time schedules to reflect current market rental rates for the locations we lease. Rents are charged quarterly and paid in advance. In fiscal 2016, we expect to...

  • Page 37
    ... sales, revenue is recognized at the time of shipment. We sell gift cards to our customers in our retail stores, through our ecommerce sites, and through select third parties. We do not charge administrative fees on unused gift cards and our gift cards do not have an expiration date. A current...

  • Page 38
    ... fiscal quarter. Due to the estimates involved in these assessments, adjustments to the historical rates are generally made no more often than annually in order to allow time for more definite trends to emerge. Based on this assessment at the end of fiscal 2015, 2014 and 2013, the deferred revenue...

  • Page 39
    ... Treadway Commission (2013 framework) (the COSO criteria). The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial 28 BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT

  • Page 40
    ...'s and the Snickers/M&M Mars business. Ms. John serves on the Board of Directors of Jack in the Box Inc., a publicly traded restaurant company. Gina Collins, 43, joined Build-A-Bear Workshop in January 2014 as Chief Marketing Officer and Brand Bear. Prior to joining the Company, Ms. Collins was at...

  • Page 41
    .... Jennifer Kretchmar, 42, joined Build-A-Bear Workshop in August 2014 as Chief Product Officer and Innovation Bear. Prior to joining the Company, Ms. Kretchmar was Senior Vice President of Product and Brand Management with the Stride Rite Children's Group of Wolverine World Wide, Inc. where since...

  • Page 42
    ... in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 17, 2016 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP St. Louis, Missouri March 17, 2016 BUILD-A-BEAR WORKSHOP, INC...

  • Page 43
    Build-A-Bear Workshop, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share data) January 2, 2016 ASSETS Current assets: Cash and cash equivalents Inventories Receivables Prepaid expenses and other current assets Total current assets Property and equipment, net ...

  • Page 44
    ... share and per share data) Fiscal Year 2015 Revenues: Net retail sales Franchise fees Commercial revenue Total revenues $ 372,715 2,196 2,783 377,694 $ 387,725 2,531 2,098 392,354 $ 373,173 3,564 2,332 379,069 2014 2013 Costs and expenses: Cost of merchandise sold - retail Cost of merchandise sold...

  • Page 45
    Build-A-Bear Workshop, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (Dollars in thousands) Accumulated other Common stock Balance, December 29, 2012 Share repurchase and retirement Stock-based compensation Shares issued under employee stock plans Other comprehensive income ...

  • Page 46
    ...related liabilities Gift cards and customer deposits Deferred revenue Net cash provided by operating activities Cash flows from investing activities: Purchases of property and equipment Purchases... 1,408 498 715 $ 27,345 $ 14,362 $ (2,112) 2014 2013 BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT 35

  • Page 47
    ... of Business and Basis of Preparation Build-A-Bear Workshop, Inc. (the Company) is a specialty retailer of plush animals and related products. The Company began operations in October 1997. The Company sells its products through its 329 company-owned stores operated primarily in leased mall locations...

  • Page 48
    .... Revenues from the sale of gift cards are recognized at the time of redemption. Unredeemed gift cards are included in gift cards and customer deposits on the consolidated balance sheets. For gift cards issued prior to the establishment of Build-A-Bear Card Services LLC in December 2015, the Company...

  • Page 49
    ... Company has share-based compensation plans covering the majority of its management groups and its Board of Directors. The Company accounts for share-based payments utilizing the fair value recognition provisions of ASC 718. The Company recognizes 38 BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT

  • Page 50
    ... Computer software Construction in progress $ 2,261 40,322 26,277 14,970 113,981 46,745 6,871 251,427 Less accumulated depreciation Total, net $ 183,686 67,741 $ $ 2014 2,261 39,391 22,720 14,970 119,894 43,540 5,034 247,810 185,044 62,766 BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT 39

  • Page 51
    ... of the deferred tax assets included the generation of significant positive cumulative income in the U.S. for the three-year period ending with fiscal 2015, the implementation of tax planning strategies, and projections of future taxable income. 40 BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT

  • Page 52
    ... United Kingdom, Canada, Ireland and Denmark), are as follows (in thousands): 2015 Domestic Foreign Total $ $ 13,854 4,044 17,898 $ $ 2014 12,973 3,051 16,024 2013 $ (1,134) (984) $ (2,118) The following tax years remain open in the Company's major taxing jurisdictions as of January 2, 2016: United...

  • Page 53
    ... million for 2015, 2014 and 2013, respectively. Future minimum lease payments at January 2, 2016, were as follows (in thousands): 2016 2017 2018 2019 2020 Subsequent to 2020 Total $ 39,005 30,884 24,695 21,722 21,033 64,749 $ 202,088 (10) Net Income (Loss) Per Share The Company uses the two-class...

  • Page 54
    ...Bear Workshop, Inc. 2002 Stock Incentive Plan (the 2002 Plan). In 2004, the Company adopted the Build-A-Bear Workshop, Inc. 2004 Stock Incentive Plan (the 2004 Plan) which the Company amended and restated in 2009 and 2014 (collectively, the Plans). Under the Plans, as amended, up to 1,475,000 shares...

  • Page 55
    ... related party for fixtures and furniture amounted to $0.9 million, $0.7 million and $1.3 million, in fiscal 2015, 2014 and 2013, respectively. The total amount due to this related party as of January 2, 2016 and January 3, 2015 was immaterial. 44 BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT

  • Page 56
    ..., Canada, the United Kingdom, Ireland and Denmark and other retail delivery operations, including the Company's e-commerce sites and temporary stores. The international franchising segment includes the licensing activities of the Company's franchise agreements with store locations in Europe, Asia...

  • Page 57
    ...types of products and services that they offer. Each reportable segment may operate in many geographic areas. Revenues are recognized in the geographic areas based on the location of the customer or franchisee. The following schedule is a summary of the Company's sales to external customers and long...

  • Page 58
    ... by reference from Exhibit 10.7 on our Current Report on Form 8-K, filed on March 11, 2016) 10.2.7* 3.1 3.2 10.2.8* 4.1 10.2.9* 10.2* 10.2.10* 10.2.1* 10.2.11* 10.2.2* 10.2.12* 10.2.3* 10.2.13* 10.2.14* 10.2.4* 10.2.5* 10.2.15* BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT 47

  • Page 59
    ... by reference from Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed on August 8, 2013) Amended and Restated Employment, Confidentiality and Noncompete Agreement, dated March 7, 2016, by and between Sharon Price John and Build-A-Bear Workshop, Inc. (incorporated by reference from Exhibit 10...

  • Page 60
    ... the Registrant, Build-A-Bear Workshop Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-Bear Retail Management, Inc., as borrowers, and U.S. Bank National Association, as lender, dated as of August 11, 2008 (incorporated by reference from Exhibit 10.1 to our Current Report on Form...

  • Page 61
    ....1 31.2 32.1 10.13.2 32.2 10.13.3 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE 10.14 10.15 10.16* * Management contract or compensatory plan or arrangement 50 BUILD-A-BEAR WORKSHOP, INC. 2015 ANNUAL REPORT

  • Page 62
    ... duly authorized. BUILD-A-BEAR WORKSHOP, INC. (Registrant) Date: March 17, 2016 By: /s/ Sharon John Sharon John Chief Executive Officer and Chief President Bear By: /s/ Voin Todorovic Voin Todorovic Chief Financial Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears...

  • Page 63
    ... Roger Parry Sr. Managing Director, Europe Brian Sawyer Sr. Managing Director, Digital Marketing SHAREHOLDER INFORMATION Build-A-Bear Workshop World Bearquarters 1954 Innerbelt Business Center Drive St. Louis, Mo. 63114-5760 888.560.2327 314.423.8000 Fax: 314.423.8188 Web: buildabear.com® Transfer...

  • Page 64
    ... 57 Canada 13 Republic of Ireland 2 Denmark 1 FRANCHISED 77 Australia 19 Germany 18 Mexico 14 South Africa 6 Thailand 6 United Arab Emirates 5 Turkey 4 Singapore 2 Bahrain 1 Kuwait 1 Qatar 1 Our Global Brand There are currently Build-A-Bear Workshop stores in 16 countries, including both company...

  • Page 65
    BUILD-A-BEAR WORKSHOP, INC. 1954 Innerbelt Business Center Drive | St. Louis, MO 63114-5760 | www.buildabear.com