UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended August 2, 2025
OR
☐
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number: 001-32320
BUILD-A-BEAR WORKSHOP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
43-1883836
(State or Other Jurisdiction of
Incorporation or Organization)
(IRS Employer
Identification No.)
415 South 18th St.
St. Louis, Missouri
63103
(Address of Principal Executive Offices)
(Zip Code)
(314) 423-8000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common stock
BBW
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of September 8, 2025, there were 13,126,157 issued and outstanding shares of the registrant’s common stock.
INDEX TO FORM 10-Q
Page
Part I Financial Information
Item 1.
Financial Statements (Unaudited)
4
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
5
Condensed Consolidated Statements of Cash Flows
6
Notes to Condensed Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
25
Item 4.
Controls and Procedures
Part II Other Information
Item 1A.
Risk Factors
26
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
27
Signatures
28
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
August 2,
February 1,
August 3,
2025
2024
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
Inventories, net
Receivables, net
Prepaid expenses and other current assets
Total current assets
Operating lease right-of-use asset
Property and equipment, net
Deferred tax assets
Other assets, net
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Operating lease liability short term
Gift cards and customer deposits
Deferred revenue and other
Total current liabilities
Operating lease liability long term
Other long-term liabilities
Stockholders' equity:
Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares issued or outstanding at August 2, 2025, February 1, 2025 and August 3, 2024
Common stock, par value $0.01, Shares authorized: 50,000,000; Issued and outstanding: 13,159,408, 13,257,131, and 13,590,945 shares, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders' equity
Total Liabilities and Stockholders' Equity
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
Thirteen weeks ended
Twenty-six weeks ended
Revenues:
Net retail sales
Commercial revenue
International franchising
Total revenues
Costs and expenses:
Cost of merchandise sold - retail
Cost of merchandise sold - commercial
Cost of merchandise sold - international franchising
Total cost of merchandise sold
Consolidated gross profit
Selling, general and administrative expense
Interest income, net
Income before income taxes
Income tax expense
Net income
Foreign currency translation adjustment
Comprehensive income
Income per common share:
Basic
Diluted
Shares used in computing common per share amounts:
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Cash flows provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Share-based and performance-based stock compensation
Provision/adjustments for doubtful accounts
(Gain)/Loss on disposal of property and equipment
Deferred taxes
Change in assets and liabilities:
Prepaid expenses and other assets
Accounts payable and accrued expenses
Operating leases
Deferred revenue
Net cash provided by operating activities
Cash flows used in investing activities:
Purchases of property and equipment
Net cash used in investing activities
Cash flows used in financing activities:
Purchases of common stock for employee equity awards, net of tax
Cash dividends paid
Purchases of Company’s common stock
Net cash used in financing activities
Effect of exchange rates on cash
Increase/(Decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
Supplemental disclosure of cash flow information:
Restricted cash from long-term deposits
Total cash, cash equivalents and restricted cash
Net cash paid during the period for income taxes
1. Basis of Presentation
The condensed consolidated financial statements included herein are unaudited and have been prepared by Build-A-Bear Workshop, Inc. and its subsidiaries (collectively, the “Company”) pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States ("U.S.") generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet of the Company as of February 1, 2025, was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to summarize fairly the financial position of the Company and the results of the Company’s operations and cash flows for the periods presented. All of these adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. Because of the seasonal nature of the Company’s operations, results of operations of any single reporting period should not be considered as indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended February 1, 2025, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on April 17, 2025.
Certain prior period amounts in the notes to the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings attributable to Build-A-Bear Workshop, Inc.
Significant Accounting Policies
The Company's significant accounting policies are summarized in Note 2 to the consolidated financial statements included in its Form 10-K for the year ended February 1, 2025.
2. Revenue
Currently, most of the Company’s revenue is derived from direct-to-consumer ("DTC") retail sales (including from its e-commerce sites) and is recognized when control of the merchandise is transferred to the customer. The Company's disaggregated revenue is fully disclosed as net sales to external customers by reporting segment and by geographic area (See Note 11 — Segment Information for additional information). The Company's direct-to-consumer reporting segment represents 92% of consolidated revenue for the second quarter of fiscal 2025. The majority of these sales transactions were single performance obligations that were recorded when control of merchandise was transferred to the customer.
The following is a description of principal activities from which the Company generates its revenue through three reportable segments.
1. The Company’s direct-to-consumer segment includes the operating activities of corporately-managed stores, and e-commerce demand (orders generated online to be fulfilled from either the Company's warehouse or its stores). Direct-to-consumer revenue is recognized when control of the merchandise is transferred to the customer and for the Company's online sales, generally upon estimated delivery to the customer. Revenue is measured as the amount of consideration, including any discounts or incentives, the Company expects to receive in exchange for transferring the merchandise. Product returns have historically averaged less than one-half of one percent due to the personalized and interactive nature of its products, where consumers customize their own stuffed animal. The Company has elected to exclude from revenue all collected sales, value added, and other taxes paid by its consumers.
For the Company’s gift cards, revenue is deferred for single transactions until redemption including any related gift card discounts. Approximately 80% of gift cards are redeemed within three years of issuance and over the last three years, approximately 65% of gift cards issued have been redeemed within the first twelve months. In addition, unredeemed gift cards or breakage revenue is recorded in proportion to the consumers’ redemption pattern using an estimated breakage rate based on historical experience. Subsequent to stores reopening following shutdowns caused by the pandemic, the Company experienced lower redemptions of its gift cards for all periods of outstanding activated cards compared to pre-pandemic redemption patterns (fiscal year 2019 and earlier), which impacts the gift card breakage rate. The Company does not believe that the redemption pattern experienced during the pandemic reflects the pattern in the future and has adjusted the historical redemption data used to calculate the breakage rate. The Company continues to evaluate expected breakage annually and adjusts the breakage rates in the fourth quarter of each year, or at other times if significant changes in consumer behavior are detected. Changes to breakage estimates impact revenue recognition prospectively. Further, given the magnitude of the Company's gift card liability, the changes in breakage rates could have a significant impact on the amount of breakage revenue recognized in future periods. As a matter of sensitivity, a hypothetical 1% change in our gift card breakage rate in fiscal 2024 would have resulted in a change in breakage revenue of $1.1 million.
For certain qualifying transactions, a portion of revenue transactions are deferred for the obligation related to the Company’s loyalty program or when a material right in the form of a future discount is granted. In these transactions, the transaction price is allocated to the separate performance obligations based on the relative standalone selling price. The standalone selling price for the points earned for the Company’s loyalty program is estimated using the net retail value of the merchandise purchased, adjusted for estimated breakage based on historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired. The Company issues certificates daily to loyalty program members who have earned 100 or more points in North America and 50 points or more in the United Kingdom (the "U.K.") with certificates historically expiring in four months if not redeemed. The Company assesses the redemption rates of its certifications on a quarterly basis to update the rate at which loyalty program points turn into certifications and the rate that certifications are redeemed. In regard to the consolidated balance sheet, contract liabilities related to the loyalty program are classified as deferred revenue and other.
2. The Company’s commercial segment includes transactions with other businesses and is mainly comprised of licensing the Company’s intellectual properties for third-party use and wholesale sales of merchandise, including supplies and fixtures. The license agreements provide the customer with highly interrelated rights including the Build-A-Bear retail operations proprietary process that are not distinct in the context of the contract and therefore, have been accounted for as a single performance obligation and recognized as licensee sales occur. If the contract includes a guaranteed minimum, the minimum guarantee is recognized on a straight-line basis over the guarantee term until such time as royalties earned through licensee sales exceed the minimum guarantee. The Company classifies these guaranteed minimum contract liabilities as deferred revenue on the consolidated balance sheet. Revenue for wholesale sales is recognized when control of the merchandise or fixtures is transferred to the customer, which generally occurs upon delivery to the customer.
3. The Company’s international franchising segment includes the activities with franchisees who operate store locations in certain countries and includes development fees, sales-based royalties and merchandise, including supplies and fixture sales. The Company's obligations under the franchise agreements are ongoing and include operations and product development support and training, generally concentrated around initial store openings. These obligations are highly interrelated rights that are not distinct in the context of the contract and, therefore, have been accounted for as a single performance obligation and recognized as franchisee sales occur. If the contract includes an initial, one-time nonrefundable development fee, this fee is recognized on a straight-line basis over the term of the franchise agreement, which may extend for periods up to 25 years. The Company classifies these initial, one-time nonrefundable franchise fee contract liabilities as deferred revenue on its consolidated balance sheet. Revenue from merchandise and fixture sales is recognized when control is transferred to the franchisee, which generally occurs upon delivery.
The Company also incurs expenses directly related to the startup of new franchises, which may include finder’s fees, legal and travel costs, expenses related to its ongoing support of the franchises and employee compensation. Accordingly, the Company’s policy is to capitalize any finder’s fee, as an incremental cost, and expense all other costs as incurred. Additionally, the Company amortizes these capitalized costs into expense in the same pattern as the development fee's recording of revenue as described previously. These capitalized costs for the thirteen and twenty-six weeks ended August 2, 2025 are not material to the financial statements.
The Company reserves for “expected” credit losses on financial instruments and other commitments to extend credit rather than the “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions and reasonable and supportable forecasts. For the twenty-six weeks ended August 2, 2025 and August 3, 2024, the Company's accounts receivable are net of $6.9 million and $6.5 million, inclusive of the allowance for credit losses and the reserve for the UK's customs authority "HMRC" matter of $3.6 million and $3.1 million, respectively. See Note 12 for further discussion of the HMRC matter.
3. Leases
The majority of the Company's leases relate to retail stores and corporate offices. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. Most new retail store leases have an original term of a five to ten-year base period and may include renewal options to extend the lease term beyond the initial base period. The extension periods are typically much shorter than the original lease term given the Company's strategic decision to maintain a high level of lease optionality. Some leases also include early termination options, which can be exercised under specific conditions. Additionally, the Company may operate stores for a period of time on a month-to-month basis after the expiration of the lease term. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, certain leases contain incentives, such as construction allowances from landlords and/or rent abatements subsequent to taking possession of the leased property.
The table below presents certain information related to the lease costs for operating leases for the thirteen and twenty-six weeks ended August 2, 2025 and August 3, 2024 (in thousands).
August 2, 2025
August 3, 2024
Operating lease costs
Variable lease costs (1)
Short term lease costs
Total Operating Lease costs
(1)
Variable lease costs consist of leases with variable rent structures, which are intended to increase flexibility in an environment with expected high sales volatility and provide a natural hedge against potential sales declines.
Other information
The table below presents supplemental cash flow information related to leases for the thirteen and twenty-six weeks ended August 2, 2025 and August 3, 2024 (in thousands).
Operating cash flows for operating leases
As of August 2, 2025 and August 3, 2024, the weighted-average remaining operating lease term was 6.1 years and 5.6 years, respectively, and the weighted-average discount rate was 7.1% and 7.2%, respectively, for operating leases recognized on the Company's condensed consolidated balance sheets.
The value of our operating lease asset was $101.0 million and $94.2 million as of August 2, 2025 and August 3, 2024, respectively. The increase was driven by the Company entering into leases for new stores as well as securing longer-term extensions for existing stores resulting in contracts with more favorable terms.
For the thirteen and twenty-six weeks ended August 2, 2025 and the thirteen and twenty-six weeks ended August 3, 2024 the Company incurred no impairment charges against its right-of-use operating lease assets.
Undiscounted cash flows
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the balance sheet (in thousands).
Operating Leases
2026
2027
2028
2029
Thereafter
Total minimum lease payments
Less: amount of lease payments representing interest
Present value of future minimum lease payments
Less: current obligations under leases
Long-term lease obligations
As of August 2, 2025, the Company had additional executed leases that had not yet commenced with operating lease liabilities of $32.8 million. These leases are expected to commence in fiscal 2025 and fiscal 2026 with lease terms of ten to twenty years.
4. Other Assets
Prepaid expenses and other current assets consist of the following (in thousands):
Prepaid occupancy (1)
Prepaid insurance
Prepaid gift card fees
Prepaid royalties
Prepaid taxes (2)
Other (3)
Total
Prepaid occupancy consists of prepaid expenses related to variable non-lease components.
Other non-current assets consist of the following (in thousands):
Entertainment production asset (1)
Deferred compensation
Other (2)
(2)
Other consists primarily of deferred financing costs related to the Company's credit facility.
5. Accrued Expenses
Accrued expenses consist of the following (in thousands):
Accrued wages, bonuses and related expenses
Current income taxes payable
Sales and value added taxes payable
Accrued rent and related expenses (1)
Accrued expense - other (2)
Accrued rent and related expenses consist of accrued costs associated with non-lease components.
6. Stock-based Compensation
On April 14, 2020, the Board of Directors (the “Board”) of Build-A-Bear Workshop, Inc. (the “Company”) adopted, subject to stockholder approval, the Build-A-Bear Workshop, Inc. 2020 Omnibus Incentive Plan (the “2020 Incentive Plan”). On June 11, 2020, the Company’s stockholders approved the 2020 Incentive Plan. On April 11, 2023, the Board adopted, subject to stockholder approval, the Build-A-Bear Workshop, Inc. Amended and Restated 2020 Omnibus Incentive Plan (the “Restated 2020 Incentive Plan”). On June 8, 2023, at the Company’s 2023 Annual Meeting of Stockholders, the Company’s stockholders approved the Restated 2020 Incentive Plan. The Restated 2020 Incentive Plan, which is administered by the Compensation and Human Capital Committee of the Board, permits the grant of stock options (including both incentive and non-qualified stock options), stock appreciation rights, other stock-based awards, including restricted stock and restricted stock units, cash-based awards, and performance awards pursuant to the terms of the Restated 2020 Incentive Plan. The Restated 2020 Incentive Plan will terminate on April 11, 2033, unless earlier terminated by the Board. The total number of shares of the Company’s common stock authorized for issuance under the Restated 2020 Incentive Plan increased by 800,000 to a maximum of 1,800,000 since its inception as the 2020 Incentive Plan, subject to customary capitalization adjustments, substitutions of acquired company awards and certain additions of acquired company plan shares, plus shares that are subject to outstanding awards made under the Build-A-Bear Workshop, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) that on or after April 14, 2020, may be forfeited, expire or be settled for cash.
For the thirteen weeks ended August 2, 2025 and August 3, 2024, selling, general and administrative expense included stock-based compensation expense of $0.7 million and $0.6 million, respectively. For the twenty-six weeks ended August 2, 2025 and August 3, 2024, selling, general, and administrative expense included stock-based compensation expense of $1.2 million and $1.0 million, respectively. As of August 2, 2025, there was $6.4 million of total unrecognized compensation expense related to unvested restricted stock awards which is expected to be recognized over a weighted-average period of 2.1 years.
As of February 1, 2025, and August 2, 2025, the Company had no outstanding stock options.
The following table is a summary of the balances and activity related to time-based and performance-based restricted stock for the twenty-six weeks ended August 2, 2025:
Time-Based Restricted Stock
Performance-Based Restricted Stock
Shares
Weighted Average Grant Date Fair Value
Outstanding, February 1, 2025 (1)
Granted (1)
Vested
Adjustment for performance achievement
Earned and vested
Forfeited (1)
Outstanding, August 2, 2025 (1)
The total fair value of shares vested during the twenty-six weeks ended August 2, 2025 and August 3, 2024 was $2.5 million and $2.2 million, respectively.
The outstanding performance shares as of August 2, 2025 consist of the following:
Unearned shares subject to performance-based restrictions at target:
2023 - 2025 consolidated pre-tax income growth objectives
2023 - 2025 consolidated revenue growth objectives
2024 - 2026 consolidated, cumulative EBITDA objectives
2024 - 2026 consolidated, cumulative revenue objectives
2025 - 2027 consolidated revenue growth objectives
Performance shares outstanding, August 2, 2025
7. Income Taxes
On July 4, 2025, the "One Big Beautiful Bill Act" ("OBBB") was signed into law. The Company has analyzed the legislation and expects that the OBBBA will have an immaterial impact on our FY25 and FY26 effective tax rate. The Company is continuing to evaluate the impacts as additional information is provided.
The Company's effective tax rate was 19.3% and 20.8% for the thirteen and twenty-six weeks ended August 2, 2025 compared to 24.0% and 23.8% for the thirteen and twenty-six weeks ended August 3, 2024. The fiscal 2025 effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense offset by the tax impact of equity awards vesting, the foreign-derived intangible income deduction and discrete benefits related to settlement of a prior period tax position. The fiscal 2024 effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the tax impact of equity awards vesting. In addition, in the second quarter of fiscal 2025 and 2024, the Company remains in a full valuation allowance in certain foreign jurisdictions.
8. Stockholders’ Equity
The following table sets forth the changes in stockholders’ equity (in thousands) for the thirteen weeks ended August 2, 2025 and August 3, 2024 (in thousands):
For the thirteen weeks ended August 2, 2025
For the thirteen weeks ended August 3, 2024
Common
Retained
stock
APIC (1)
AOCI (2)
earnings
Balance, beginning
Stock-based compensation
Share repurchase
Cash dividends
Other comprehensive income (loss)
Balance, ending
(1) Additional paid-in capital (“APIC”)
(2) Accumulated other comprehensive loss (“AOCI”)
The following table sets forth the changes in stockholders’ equity (in thousands) for the twenty-six weeks ended August 2, 2025 and August 3, 2024 (in thousands):
For the twenty-six weeks ended August 2, 2025
For the twenty-six weeks ended August 3, 2024
Shares issued under employee stock plans
Shares withheld in lieu of tax withholdings
Other
Other comprehensive income
During the thirteen and twenty-six weeks ended August 2, 2025, the Company utilized $3.1 million in cash to repurchase 59,083 shares and utilized $7.3 million in cash to repurchase 167,585 shares, respectively, under its $100 million dollar stock repurchase program that was authorized by the Board of Directors on September 11, 2024 (the "September 2024 Stock Repurchase Program"). Between the end of the second fiscal quarter of 2025 and September 8, 2025, the Company utilized an additional $1.9 million in cash to repurchase 34,949 under the September 2024 Stock Repurchase Program, leaving the aggregate $80.0 million available for future repurchases under that plan. For the thirteen and twenty-six weeks ended August 2, 2025, the Company's Board of Directors authorized cash dividends to shareholders of $2.9 million and $5.8 million, respectively.
During the thirteen and twenty-six weeks ended August 3, 2024, the Company utilized $9.1 million in cash to repurchase 341,621 shares and utilized $18.2 million in cash to repurchase 685,027 shares, respectively, under its prior $50.0 million program authorized by its Board of Directors on August 31, 2022 (the "August 2022 Stock Repurchase Program"). For the thirteen and twenty-six weeks ended August 3, 2024, the Company's Board of Directors authorized cash dividends to shareholders of $2.7 million and $5.6 million, respectively.
9. Income per Share
The following table sets forth the computation of basic and diluted net income per share (in thousands, except share and per share data):
NUMERATOR:
DENOMINATOR:
Weighted average number of common shares outstanding - basic
Dilutive effect of share-based awards:
Weighted average number of common shares outstanding - dilutive
Basic net income per common share
Diluted net income per common share
In calculating the diluted income per share for the thirteen and twenty-six weeks ended August 2, 2025, respectively, there were 28,036 and 14,018 shares of common stock that were outstanding at the end of the period that were not included in the computation of diluted income per share due to their anti-dilutive effect. For the thirteen and twenty-six weeks ended August 3, 2024, respectively, there were 36,689 and 28,989 shares of common stock that were outstanding at the end of the period that were not included in the computation of diluted income per share due to their anti-dilutive effect.
10. Comprehensive Income
The difference between comprehensive income or loss and net income or loss is the result of foreign currency translation adjustments on the balance sheets of subsidiaries whose functional currency is not the U.S. dollar. The accumulated other comprehensive loss balance on August 2, 2025 and August 3, 2024 was comprised entirely of foreign currency translation. For the thirteen weeks ended August 2, 2025 and August 3, 2024, the Company had no reclassifications out of accumulated other comprehensive loss.
11. Segment Information
The Company’s operations are conducted through three operating segments consisting of DTC, commercial and international franchising. The DTC segment includes the operating activities of corporately-managed locations and other retail delivery operations in the U.S., Canada, the Republic of Ireland and the U.K., including the Company’s e-commerce sites and temporary stores. The commercial segment includes the Company’s transactions with other businesses, mainly comprised of licensing the Company’s intellectual properties for third-party use and wholesale sales to our partner-operated locations. The international franchising segment includes the licensing activities of the Company’s franchise agreements with store locations in select countries in Asia, Australia, the Middle East, Africa, and South America. The operating segments have discrete sources of revenue, different capital structures and different cost structures. These operating segments represent the basis on which the Company’s chief operating decision maker regularly evaluates the business in assessing performance, determining the allocation of resources and the pursuit of future growth opportunities. Accordingly, the Company has determined that each of its operating segments represent a reportable segment. The three reportable segments follow the same accounting policies used for the Company’s consolidated financial statements.
The following is a summary of the financial information for the Company’s reportable segments (in thousands):
Direct-to-
International
Consumer
Commercial
Franchising
Thirteen weeks ended August 2, 2025
Total Revenue
Cost of Goods Sold
Gross Profit
Selling, General & Administrative
Contribution Margin
Overhead Expenses(1)
Interest Income
Thirteen weeks ended August 3, 2024
Twenty-six weeks ended August 2, 2025
Twenty-six weeks ended August 3, 2024
Total assets, depreciation and amortization, and capital expenditures for the Company's segments, as well as for Corporate and support, are as follows:
Corporate
Capital Expenditures
The Company’s reportable segments are primarily determined by the 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-lived assets by geographic area (in thousands):
North
America (1)
Europe (2)
Net sales to external customers
For purposes of this table only:
(1) North America includes corporately-managed locations and sales to wholesale customers in the United States and Canada.
(2) Europe includes corporately-managed locations in the U.K. and the Republic of Ireland and sales to wholesale customers in Europe.
(3) Other includes wholesale and franchise businesses outside of North America and Europe.
12. Contingencies
In the normal course of business, the Company is subject to legal proceedings, government inquiries and claims, and other commercial disputes. If one or more of these matters has an unfavorable resolution, it is possible that the results of operations, liquidity or financial position of the Company could be materially affected in any particular period. The Company accrues a liability for these types of contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. Gain contingencies are recorded when the underlying uncertainty has been settled.
Assessments made by the U.K. customs authority in 2012 were appealed by the Company, which has paid the disputed duty, strictly under protest, pending the outcome of the continuing dispute, and this is included in receivables, net in the DTC segment. The U.K. customs authority contested the Company's appeal. Rulings by the First Tier Tribunal in November 2019 and Upper Tribunal in March 2021 held that duty was due on some, but not all, of the products at issue. The Company petitioned the Court of Appeal for permission to appeal certain elements of the Upper Tribunal decision, and in early November 2021, a judge granted the Company's petition for permission to appeal those elements of the Upper Tribunal decision on some, but not all, of the grounds of appeal that the Company had put forward. An appeal was heard by the Court of Appeal during the first quarter of fiscal 2022, and the Court of Appeal dismissed the appeal in the third quarter of fiscal 2022. During the fourth quarter of fiscal 2022, the UK Supreme Court declined to hear the appeal. The Company is engaging with the customs authority to attempt to resolve all outstanding issues following the application of the determined principles. The case will return to the lower tribunal for a final ruling if outstanding issues cannot be resolved. The Company maintains a provision against the related receivable, based on a current evaluation of collectability, using the latest facts available in the dispute. As of August 2, 2025, the Company had a gross receivable balance of $5.1 million and a reserve of $3.6 million, leaving a net receivable of $1.5 million. The Company believes that the outcome of this dispute will not have a material adverse impact on the results of operations, liquidity, or financial position of the Company.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Notice Regarding Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties, and we undertake no obligation to update these statements except as required by the federal securities laws. Our actual results may differ materially from the results discussed in the forward-looking statements. These risks and uncertainties include, without limitation, those detailed under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025, as filed with the SEC, and include the following:
we may not be able to operate successfully if we lose key personnel, are unable to hire qualified additional personnel, or experience turnover of our management team;
Business Overview
We were formed in 1997 as a mall-based, experiential specialty retailer. Build-A-Bear has since evolved to become a beloved multi-generational brand focused on its mission to “add a little more heart to life” where guests of all ages make their own “furry friends” in celebration and commemoration of life moments. Guests create their own stuffed animals by participating in the stuffing, dressing, accessorizing, and naming of their own teddy bears and other plush toys based on the Company’s own intellectual property and in conjunction with a variety of best-in-class licenses. The hands-on and interactive nature of our more than 600 company-owned, partner-operated and franchise experience locations around the world, combined with Build-A-Bear’s pop-culture appeal, often fosters a lasting and emotional brand connection with consumers, and has enabled the Company to expand beyond its retail stores to include e-commerce sales on www.buildabear.com and non-plush branded consumer categories via out-bound licensing agreements with leading manufacturers, as well as the creation of engaging content via Build-A-Bear Entertainment (a subsidiary of Build-A-Bear Workshop, Inc.). Over the last 28 years, Build-A-Bear has become a brand with high consumer awareness, positive affinity, and strong retail influence by leveraging our brand strength to grow our brick-and-mortar retail footprint beyond traditional malls through a range of store sizes, formats and locations including tourist destinations. We are also growing through our websites, which focus on gift-giving, collectible merchandise, and licensed products. In addition to growing our corporately-managed store and e-commerce footprint, we are also growing through partner operated and franchised locations, particularly for our international expansion. Our ongoing digital transformation, which touches our e-commerce business, consumer loyalty program and digital marketing and content, has led to omni-channel growth over the past several years. Build-A-Bear's pop-culture appeal has played a key role in growing our total addressable market beyond children by adding teens and adults with entertainment and sports licensing, collectible and gifting offerings, as well as by introducing new products and adding categories beyond plush.
We primarily operate through a vertical retail channel with corporately-managed, partner-operated, and franchise locations that feature a unique combination of experience and product in which guests can “make their own stuffed animals.” We also operate buildabear.com and buildaber.co.uk, which both serves as an information and communications tool to plan a store visit as well as an e-commerce site that focuses on gift-giving, collectible merchandise, and licensed products that appeal to consumers that have an affinity for characters from a range of entertainment, sports, art, and gaming properties. Our retail stores also act as mini distribution centers that provide efficient omnichannel fulfillment for our digital demand. The primary consumer target for our brick-and-mortar locations is families with children, while our e-commerce sites focus on collectors and gift givers that are primarily tweens, teens, and adults. Additionally, we offer products in non-plush consumer categories via outbound licensing agreements with leading manufacturers.
Our strategy includes leveraging our brand strength to continue to evolve our brick-and-mortar retail footprint with a versatile range of formats and locations, including tourist destinations, expand into international markets primarily via our partner-operated and franchise store models, and grow our e-commerce business. By leveraging our brand strength and owned intellectual properties through the creation of engaging short-form and long-form content for kids and adults, we endeavor to develop a circle of continuous engagement to increase purchase occasions and to continue to broaden the consumer base beyond children with tweens, teens and adults.
As of August 2, 2025, we had 368 corporately-managed stores globally, 157 partner-operated locations operating through our partner-operated model in which we sell our products on a wholesale basis to other companies that execute our retail experience, and 102 international franchised stores, all under the Build-A-Bear Workshop brand. We also operate a limited number of seasonal locations. In addition to these locations, we sell products on our company-owned e-commerce sites and third-party marketplace sites, our franchisees sell products through sites that they manage as well as other third-party marketplace sites and other parties sell products on their sites under wholesale agreements.
We operate in three segments that share the same infrastructure, including management, systems, merchandising and marketing, and generate revenues as follows:
Direct-to-Consumer (“DTC”) – Corporately-managed retail stores located in the United States (the "U.S."), Canada, the United Kingdom ("U.K."), and the Republic of Ireland and two e-commerce sites;
Commercial – Transactions with other businesses, mainly comprised of wholesale product sales to partner-operated locations and licensing our intellectual property, including entertainment properties, for third-party manufacturing and sales; and
International franchising – Royalties as well as products and fixtures sales from other international operations under franchise agreements.
Selected financial data attributable to each segment for the thirteen and twenty-six weeks ended August 2, 2025 and August 3, 2024 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Business Update
Build-A-Bear Workshop offers interactive entertainment experiences via both physical and digital engagement, targeting a range of consumer segments and purchasing occasions through digitally-driven, diversified omnichannel capabilities. We operate a vertical retail channel with experience locations that feature a unique combination of interactivity and product in which guests can “make their own stuffed animals” by participating in the stuffing, dressing, accessorizing and naming of their own teddy bears and other stuffed animals along with the now-famous "Heart Ceremony" that helps to make the experience memorable by bringing the furry friend to "life." We also operate e-commerce sites that focus on gift-giving, collectible merchandise and licensed products that appeal to consumers that have an affinity for characters from a range of entertainment, sports, art, and gaming properties. Our engaging digital purchasing experiences include our online “Bear-Builder”, an age-gated adult-focused “Bear Cave” microsite. Our retail stores also act as “mini distribution centers” that provide efficient omnichannel support for our digital demand. The primary consumer target for our retail stores is families with children while our e-commerce sites focus on collectors and gift givers that are primarily tweens, teens and adults. We have also extended our business model by leveraging our brand strength and owned intellectual properties through the creation of engaging content for kids and adults while also offering products at wholesale and in non-plush consumer categories via outbound licensing agreements with leading manufacturers.
We seek to provide outstanding guest service and experiences across all channels and touch points including our retail locations, our e-commerce sites, our mobile sites and apps as well as traditional, digital, and social media. We believe the hands-on and interactive nature of our experience locations, our personal service model and engaging digital shopping experiences result in guests forming an emotional connection with our brand which has multi-generational appeal that captures today’s zeitgeist including desire for engaging experiences, personalization and “DIY” while being recognized as trusted, giving, and a part of pop culture.
We believe there are opportunities to extend the reach and size of our diverse consumer segments through expanded products and licensing relationships, evolved experiences, and incremental occasions, partnerships, and marketing activities. We believe we can further develop our business by creating a continuous circle of engagement with expanded programs including outbound branded licensing and entertainment that drives retail performance and leverages our brand equity which may in turn positively impact other channels of distribution.
We believe that the initiatives and investments that were put in place prior to the pandemic, and in many cases, we accelerated during the pandemic, are driving improved results, as we delivered growth in total revenues and pretax profit in fiscal 2022, 2023 and 2024. To continue to drive revenue and profit growth, we remain focused on our strategic priorities, which are centered primarily on three key areas:
Drive profitable growth through investment initiatives while maintaining a commitment to return capital to shareholders. As corporate store operating margins have remained robust from higher levels of revenue combined with disciplined expense management, particularly considering recent inflationary pressures, wage and tariff increases and supply chain challenges, and as we continue to evolve our real estate portfolio with new locations and formats, plus shift to asset-light business models, our cash flows have meaningfully improved. This higher-level of cash flows has been used to increase support for key initiatives to deliver long-term profitable growth, while also returning capital to shareholders through dividends and share repurchases.
Retail Stores:
Corporately-Managed Locations:
The table below sets forth the number of Build-A-Bear Workshop corporately-managed stores in North America and Europe for the periods presented:
North America
Europe
Beginning of period
Opened
Closed
End of period
As of August 2, 2025, 53% of our corporately-managed stores were in an updated Discovery format. We also expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans. The future of our retail store fleet may include expansion into more non-traditional locations, including concourse format shops and by expansion in other locations outside of traditional malls.
Partner-Operated Locations:
The number of third-party retail locations opened and closed for the periods presented below is summarized as follows:
Through our partner-operated model, there were 157 stores in operation at the end of the second quarter of 2025 with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry's and Girl Scouts of the USA. The partner-operated model is capital light for us, with the partner company building out and operating the workshops including providing the real estate location and covering the cost of labor and inventory, which is purchased from us on a wholesale basis. These locations are heavily weighted to the hospitality industry, which allow us to further advance our focus on experience location expansion in non-traditional and tourist areas, as well as shop-in-shop arrangements within other retailers’ stores.
International Franchise Stores:
Our first franchisee location was opened in November 2003. All franchised stores have similar signage, store layout, merchandise characteristics and guest experience as our corporately-managed stores. As of August 2, 2025, we had five master franchise agreements, which typically grant franchise rights for a particular country or group of countries, covering a total of eight countries.
The number of franchised stores opened and closed for the periods presented below are summarized as follows:
Beginning of periods(1)
In the ordinary course of business, we anticipate signing additional master franchise agreements in the future and terminating other such agreements. We source fixtures and other supplies for our franchisees from China which significantly reduces the capital and lowers the expenses required to open franchises. We are leveraging new formats that have been developed for our corporately-managed locations such as concourses and shop-in-shops with our franchisees.
Results of Operations
The following table sets forth, for the periods indicated, selected income statement data expressed as a percentage of total revenues, except where otherwise indicated. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales, commercial revenue, international franchising, respectively, as well as immaterial rounding:
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Cost of merchandise sold - retail (1)
Cost of merchandise sold - commercial (1)
Cost of merchandise sold - international franchising (1)
Selling, general and administrative
Retail Gross Margin (2)
Cost of merchandise sold – retail is expressed as a percentage of net retail sales. Cost of merchandise sold – commercial is expressed as a percentage of commercial revenue. Cost of merchandise sold – international franchising is expressed as a percentage of international franchising revenue.
Retail gross margin represents net retail sales less cost of merchandise sold - retail; retail gross margin percentage represents retail gross margin divided by net retail sales.
Thirteen weeks ended August 2, 2025 compared to thirteen weeks ended August 3, 2024
Total revenues. Consolidated revenues increased $12.4 million or 11.1%, primarily driven by a $11.2 million or 10.8% increase in Net Retail sales and a $1.3 million or 18% increase in Commercial revenue when compared to the second fiscal quarter of 2024. The increase in net retail sales was driven primarily by growth at existing stores and sales at new stores. The increased commercial revenue was due to higher sales to our wholesale customers, including sales to new wholesale customers resulting from the opening of 50 partner-operated locations since the second quarter of 2024.
Net retail sales for the thirteen weeks ended August 2, 2025 were $114.6 million, compared to $103.5 million for the thirteen weeks ended August 3, 2024. The components of the improved performance are as follows (dollars in thousands):
Impact from:
Existing stores
New stores
Store closures
Foreign currency translation
Gift card breakage
Gift card discounts
Digital sales
Total Change
The higher retail revenue performance was primarily the result of increased sales at existing stores and sales at new stores partially offset by the effect of store closures.
Commercial revenue was $8.6 million for the thirteen weeks ended August 2, 2025 compared to $7.3 million for the thirteen weeks ended August 3, 2024. The $1.3 million increase is primarily due to increased sales volume from our wholesale accounts through our partner-operated retail model.
International franchising revenue was $1.0 million for the thirteen weeks ended August 2, 2025 compared to $1.0 million for the thirteen weeks ended August 3, 2024.
Retail gross margin. Retail gross margin dollars increased $10.3 million to $66.1 million from $55.8 million for the thirteen weeks ended August 3, 2024. The retail gross margin rate increased 370 basis points compared to the prior year driven primarily by improved merchandise margin compared to the second quarter of fiscal 2024.
Selling, general and administrative. SG&A expenses were $56.4 million, or 45.4% of consolidated revenue, for the thirteen weeks ended August 2, 2025, compared to $49.2 million, or 44.0% of consolidated revenue, for the thirteen weeks ended August 3, 2024. The increase was driven by higher store-level compensation, corporate costs and general inflationary pressures. These increases were partially offset by favorable marketing expense timing.
Interest income, net. Interest income was $0.2 million for the thirteen weeks ended August 2, 2025, compared to interest income of $0.2 million for the thirteen weeks ended August 3, 2024.
Provision for income taxes. Income tax expense was $3.0 million with a tax rate of 19.3% for the thirteen weeks ended August 2, 2025, as compared to $2.8 million with a tax rate of 24.0% for the thirteen weeks ended August 3, 2024. The second quarter of fiscal 2025 effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense offset by the tax impact of equity awards vesting, the foreign-derived intangible income deduction and discrete benefits related to settlement of a prior period tax position. The second quarter of fiscal 2024 effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense. In addition, in the second quarter of fiscal 2025 and 2024, the Company remains in a full valuation allowance in certain foreign jurisdictions.
Twenty-six weeks ended August 2, 2025 compared to twenty-six weeks ended August 3, 2024
Total revenues. Consolidated revenues increased $26.1 million or 11.5%, primarily driven by a $22.9 million or 10.8% increase in Net Retail sales and a $3.0 million or 22% increase in Commercial revenue when compared to the second fiscal quarter of 2024. The increase in net retail sales was driven primarily by growth at existing stores and sales at new stores. The increased commercial revenue was due to higher sales to our wholesale customers, including sales to new wholesale customers resulting from the opening of 50 partner-operated locations since the second quarter of 2024.
Net retail sales for the twenty-six weeks ended August 2, 2025 were $234.2 million, compared to $211.3 million for the twenty-six weeks ended August 3, 2024. The components of the improved performance are as follows (dollars in thousands):
Commercial revenue was $16.3 million for the twenty-six weeks ended August 2, 2025 compared to $13.3 million for the twenty-six weeks ended August 3, 2024. The $3.0 million increase is primarily due to increased sales volume from our wholesale accounts through our partner-operated retail model.
International franchising revenue was $2.2 million for the twenty-six weeks ended August 2, 2025 compared to $1.9 million for the twenty-six weeks ended August 3, 2024. The change is primarily the result of the timing of product shipments and the opening of 13 franchise stores since the second quarter 2024.
Retail gross margin. Retail gross margin dollars increased $19.8 million to $134.1 million from $114.3 million for the twenty-six weeks ended August 3, 2024. The retail gross margin rate increased 320 basis points compared to the prior year driven primarily by improved merchandise margin compared to the first half of fiscal 2024.
Selling, general and administrative. SG&A expenses were $110.0 million, or 43.5% of consolidated revenue, for the twenty-six weeks ended August 2, 2025, compared to $96.8 million, or 42.7% of consolidated revenue, for the twenty-six weeks ended August 3, 2024. The increase was driven by higher store-level compensation, corporate costs and general inflationary pressures. These increases were partially offset by favorable marketing expense timing.
Interest income, net. Interest income was $0.4 million for the twenty-six weeks ended August 2, 2025 compared to interest income of $0.6 million for the twenty-six weeks ended August 3, 2024.
Provision for income taxes. Income tax expense was $7.3 million with a tax rate of 20.8% for the twenty-six weeks ended August 2, 2025 as compared to $6.3 million with a tax rate of 23.8% for the twenty-six weeks ended August 3, 2024. The fiscal 2025 effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense offset by the tax impact of equity awards vesting, the foreign-derived intangible income deduction and discrete benefits related to settlement of a prior period tax position. The fiscal 2024 effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the tax impact of equity awards vesting. In addition, in the second quarter of fiscal 2025 and 2024, the Company remains in a full valuation allowance in certain foreign jurisdictions.
Earnings before Interest, Taxes, Depreciation, and Amortization
We believe that earnings before interest, taxes, depreciation, and amortization ("EBITDA") provides meaningful information about our operational efficiency by excluding the impact of differences in tax jurisdictions and structures, debt levels, and capital investment. Additionally, this measure is the metric used for portions of the Company's incentive compensation structure. This measure is not in accordance with, or an alternative to, GAAP. The most comparable GAAP measure is income before income taxes, or pre-tax income. EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measures for comparisons with other companies. The following table sets forth, for the periods indicated, the components of EBITDA (dollars in millions):
Income before income taxes (pre-tax)
Depreciation and amortization expense
Earnings before interest, taxes, depreciation, and amortization
EBITDA for the thirteen weeks ended August 2, 2025 increased $3.8 million, or 25.3% to $18.8 million from $15.0 million for the thirteen weeks ended August 3, 2024. The increase was driven by gross profit resulting from increased retail and commercial margins partially offset by higher SG&A expenses.
EBITDA for the twenty-six weeks ended August 2, 2025 increased $8.7 million, or 26.0% to $41.9 million from $33.3 million for the twenty-six weeks ended August 3, 2024. The increase was driven by gross profit resulting from increased retail and commercial margins partially offset by higher SG&A expenses.
Seasonality and Quarterly Results
Our operating results for one period may not be indicative of results for other periods, and may fluctuate significantly because of a variety of factors, including, but not limited to: (1) changes in general economic conditions and consumer spending patterns; (2) increases or decreases in our existing store and e-commerce sales; (3) fluctuations in the profitability of our stores; (4) the timing and frequency of the sales of licensed products tied to major theatrical releases (including the cancellation or delay of such releases due to the pandemic or other external factors) and our marketing initiatives, including national media and other public relations events; (5) changes in foreign currency exchange rates; (6) the timing of new store openings, closings, relocations and remodeling and related expenses; (7) changes in consumer preferences; (8) the effectiveness of our inventory management; (9) the actions of our competitors or mall anchors and co-tenants; (10) seasonal shopping patterns and holiday and vacation schedules; (11) disruptions in store operations due to civil unrest; and (12) weather conditions.
The timing of store closures, relocations, remodels, openings and re-openings may result in fluctuations in quarterly results based on the revenues and expenses associated with each store location. Expenses related to store closings are typically incurred in stages: when the decision is made to close the store typically associated with a lease event such as an expiration or lease triggered clause; when the closure is communicated to store associates; and at the time of closure. We typically incur most preopening costs for a new store in the three months immediately preceding the store’s opening.
Because our retail operations include toy products which have sales that historically peak in relation to the holiday season as part of our revenue model, our sales have historically been highest in our fourth quarter. The timing of holidays and school vacations can impact our quarterly results. We cannot provide assurance that this will continue to be the case. In addition, for accounting purposes, the quarters of each fiscal year consist of 13 weeks, although we will have a 14-week quarter approximately once every six years. Our most recent 14-week quarter was the 2023 fiscal fourth quarter.
Liquidity and Capital Resources
As of August 2, 2025, we had a consolidated cash balance of $39.1 million, 82% of which was domiciled within the U.S. Historically, our cash requirements have been primarily for the relocation and remodeling of existing stores in our new design, opening of new stores, investments in information technology infrastructure and working capital. Over the past several years, we have met these requirements through capital generated from cash flow provided by operations. Additionally, during 2025 we have used cash on-hand to invest in short-term, highly liquid investments with original maturities of three months or less resulting in interest income of $0.4 million during the twenty-six weeks ended August 2, 2025.
A summary of our operating, investing and financing activities is shown in the following table (dollars in thousands):
Operating Activities. Cash provided by operating activities increased $19.6 million for the twenty-six weeks ended August 2, 2025, as compared to the twenty-six weeks ended August 3, 2024. This increase in cash from operating activities was primarily the result of increased net income, decreased accounts receivable driven by lower receivables from commercial accounts and an increase in accounts payable and accrued expenses. These increases were partially offset by higher cash used for inventory purchases as a result of additional tariff costs and accelerated purchases of core products as part of the Company's tariff-mitigation plans.
Investing Activities. Cash used in investing activities increased $0.6 million for the twenty-six weeks ended August 2, 2025, as compared to the twenty-six weeks ended August 3, 2024. The increase in cash used in investing activities was primarily driven by increased spending on capital expenditures.
Financing Activities. Cash used in financing activities decreased $11.4 million for the twenty-six weeks ended August 2, 2025, as compared to the twenty-six weeks ended August 3, 2024. This decrease in cash used in financing activities during the first twenty-six weeks of fiscal 2025 was driven by a decrease in the amount utilized to repurchase shares compared to the prior year.
Capital Resources: We have a revolving credit and security agreement with PNC Bank, as agent, that provides for a secured revolving loan in aggregate principal of up to $25.0 million, subject to a borrowing base formula. As of August 2, 2025, borrowings under the agreement would bear interest at (a) a base rate determined under the agreement, or (b) the borrower's option, at a rate based on SOFR, plus in either case a margin based on average undrawn availability as determined in accordance with the agreement. As of August 2, 2025, our borrowing base was $25.0 million and the Company had no outstanding borrowings as of the end of the quarter.
Most of our corporately-managed retail stores are located within shopping malls and all are operated under leases classified as operating leases. Our leases in North America tend to be shorter term leases to provide flexibility in aligning stores with market trends. Beginning in fiscal 2023, lease extensions began to have longer terms as we have secured longer contracts with more favorable terms. Our leases typically require us to pay personal property taxes, our pro rata share of real property taxes of the shopping mall, our own utilities, repairs and maintenance in our store, a pro rata share of the malls’ common area maintenance and, in some instances, merchant association fees and media fund contributions. Many leases contain incentives to help defray the cost of construction of a new store. Typically, a portion of the incentive must be repaid to the landlord if we choose to terminate the lease prior to its contracted term. In addition, some of these leases contain various restrictions relating to change in control of our company. Our leases also subject us to risks relating to compliance with changing mall rules and the exercise of discretion by our landlords on various matters, including rights of termination in some cases. Rents are invoiced monthly and paid in advance.
Our leases in the U.K. and the Republic of Ireland also typically contain provisions requiring rent reviews every five years in which the base rent that we pay is adjusted to current market rates. These rent reviews require that base rents cannot be reduced if market conditions have deteriorated but can be changed “upwards only.” We may be required to pay base rents that are significantly higher than we have projected. As a result of these and other factors, we may not be able to operate our European store locations profitably. If we cannot do so, our results of operations and financial condition could be harmed, and we may be required to record significant additional impairment charges.
Capital spending through the twenty-six weeks ended August 2, 2025 totaled $6.3 million for information technology projects and new store openings, and we expect to spend approximately $20 to $25 million on capital expenditures in fiscal 2025.
Total inventory at quarter end was $81.8 million, an increase of $14.8 million or 22% from the end of the fiscal 2024 second quarter. The increase in inventory was the result of additional tariff costs and accelerated purchases of core products that began in the second half of fiscal 2024 and continued into the first quarter of fiscal 2025 as part of the Company's tariff-mitigation plans. We are comfortable with the level and composition of our inventory.
We have various contractual or other obligations, including operating lease commitments and obligations under deferred compensation plans. As of August 2, 2025, we had purchase obligations totaling approximately $108.8 million, of which $27.1 million are due in the next 12 months. We believe our operating cash flows are sufficient to meet our material cash requirements for at least the next 12 months.
We utilized $7.3 million in cash to repurchase 167,585 shares during the twenty-six weeks ended August 2, 2025 under our current September 2024 Stock Repurchase Program, compared to using $18.2 million in cash to repurchase 685,027 shares during the twenty-six weeks ended August 3, 2024 under our prior August 2022 Stock Repurchase Program.
Off-Balance Sheet Arrangements
None.
Inflation
The impact of inflation on the Company's business operations was seen throughout fiscal 2024, predominately through rising store labor costs. However, we continue to take mitigating actions, such as select strategic price increases on highly sought-after products and leveraging distribution costs. We expect the inflationary pressures experienced in fiscal 2024 to continue into fiscal 2025, specifically through wage increases and tariffs on inventory purchases. We continue to monitor the impact of inflation on our business operations on an ongoing basis and may need to adjust our prices further to mitigate the impacts of changes to the rate of inflation during 2025 or in future years. Future volatility of general price inflation and the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead could adversely affect our financial results. Inflationary pressures may be exacerbated by higher transportation costs due to war and other geopolitical conflicts, such as the current Russia/Ukraine conflict, tension between China and Taiwan, and the Israel-Hamas conflict. We cannot provide an estimate or range of impact that such inflation may have on our future results of operations. However, if we are unable to recover the impact of these costs through price increases to our guests, or if consumer spending decreases as a result of inflation, our business, results of operations, financial condition and cash flows may be adversely affected. In addition, ongoing inflation in product costs may result in lower gross margin rates if we elect to maintain higher inventory reserves to mitigate anticipated higher costs.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the appropriate application of certain accounting policies, which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the financial statements.
We believe our application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates, including those related to long-lived assets, leases, revenue recognition and income taxes, are reevaluated on an ongoing basis, and adjustments are made when facts and circumstances dictate a change.
Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates. Our critical accounting policies and estimates are discussed in and should be read in conjunction with our Annual Report on Form 10-K for the year ended February 1, 2025 as filed with the SEC on April 17, 2025, which includes audited consolidated financial statements for our 2023 and 2022 fiscal years. There have been no material changes to the critical accounting estimates disclosed in the 2024 Form 10-K.
Recent Accounting Pronouncements
See Note 1 to the Condensed Consolidated Financial Statements — Basis of Presentation — Recent Accounting Pronouncements – Adopted in the Current Year as disclosed in our Annual Report on Form 10-K for the year ended February 1, 2025 as filed with the SEC on April 17, 2025.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to our Quantitative and Qualitative Disclosures About Market Risk as disclosed in our Annual Report on Form 10-K for the year ended February 1, 2025 as filed with the SEC on April 17, 2025.
Item 4. Controls and Procedures.
Our management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including our certifying officers, as appropriate to allow timely decisions regarding required disclosure. Based on the foregoing evaluation, our management, including the President and Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of August 2, 2025, the end of the period covered by this Quarterly Report.
It should be noted that our management, including the President and Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal controls will prevent all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control Over Financial Reporting. The Company’s management, with the participation of the Company’s President and Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. There have been no changes in our internal control over financial reporting during the quarter covered by this report that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes to our risk factors as disclosed in our Annual Report on Form 10-K for the year ended February 1, 2025 as filed with the SEC on April 17, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
Period
(a) Total Number of Shares (or Units) Purchased (1)
(b) Average Price Paid Per Share (or Unit) (2)
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (3)
May 4, 2025 - May 31, 2025
June 1, 2025 - July 5, 2025
July 6, 2025 - August 2, 2025
Item 5. Other Information
•
Security Trading Plans of Directors and Executive Officers
During the Company's fiscal quarter ended August 2, 2025, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as such terms are defined under Item 408(a) of Regulation S-K, except as described below:
Item 6. Exhibits
The following is a list of exhibits filed as a part of the quarterly report on Form 10-Q:
Exhibit No.
Description
2.1
Agreement and Plan of Merger dated April 3, 2000 between Build-A-Bear Workshop, L.L.C. and the Registrant (incorporated by reference from Exhibit 2.1 to our Registration Statement on Form S-1, filed on August 12, 2004, Registration No. 333-118142)
3.1
Third Amended and Restated Certificate of Incorporation (incorporated by reference from Exhibit 3.1 of our Current Report on Form 8-K, filed on November 11, 2004)
3.2
4.1
31.1**
Rule 13a-14(a)/15d-14(a) certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by the President and Chief Executive Officer)
31.2**
Rule 13a-14(a)/15d-14(a) certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by the Chief Financial Officer)
32.1***
Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the President and Chief Executive Officer)
32.2***
Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Chief Financial Officer)
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Extension Calculation Linkbase Document
101.DEF
Inline XBRL Extension Definition Linkbase Document
101.LAB
Inline XBRL Extension Label Linkbase Document
101.PRE
Inline XBRL Extension Presentation Linkbase Document
* Management contract or compensatory plan or arrangement.
** Filed herewith
*** Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: September 11, 2025
(Registrant)
By:
Sharon John
President and Chief Executive Officer (on behalf of
the registrant and as principal executive officer)
/s/ Voin Todorovic
Voin Todorovic
Chief Financial Officer (on behalf of the registrant and as principal
financial officer)