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 ~~September 30~~~~, 201~~7October 28, 2023

☐	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.)

~~(State or Other Jurisdiction of~~

~~Incorporation or Organization)~~

~~(IRS Employer~~

~~Identification No.)~~

~~1954 Innerbelt Business Center Drive~~415 South 18th St.

St. Louis, Missouri

~~63114~~63103

(Address of Principal Executive Offices)

(Zip Code)

(314) 423-8000

(~~Registrant~~’sRegistrant’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

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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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer ☐	Accelerated filer ☒
	~~Accelerated~~ ~~filer ☒~~

Non-accelerated filer ☐	Smaller reporting company ☒
	~~Smaller~~ ~~reporting~~Emerging growth company ☐
~~(Do not check if a smaller reporting 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 ~~14(a)~~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 ~~November 3, 2017,~~December 4, 2023, there were ~~15,917,449 issued~~14,305,690 issued and outstanding shares of the registrant’s common stock.

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BUILD-A-BEAR WORKSHOP, INC.

INDEX TO FORM 10-Q


			~~Page~~
		~~Part I~~ ~~Financial Information~~	Page

	~~Item~~ 1.	Part I Financial ~~Statements (Unaudited)~~Information

Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	3 4
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
		~~Condensed~~ ~~Consolidated Statements of Operations and Comprehensive Income (Loss)~~	4
Item 2.		~~Condensed~~ ~~Consolidated Statements of Cash Flows~~	5
		~~Notes to~~ ~~Condensed Consolidated Financial Statements~~	6

	~~Item~~ 2.	~~Management~~’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations	11
			16
	~~Item~~ 3.
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
			24
	~~Item~~ 4.
Item 4.	Controls and Procedures	19 24

Part II Other Information
	~~Part II~~ ~~Other Information~~
Item 1A.	Risk Factors		25
	~~Item~~ ~~1A.~~	~~Risk Factors~~	20

Item 2.	~~Item~~ 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
			25
	~~Item~~ 6.	~~Exhibits~~	21
Item 6.	Exhibits	26

Signatures		22 27

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PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

~~(Dollars~~(Dollars in thousands, except share and per share data)

September 30,

December 31,

October 1,

2017

2016

2016

(Unaudited)

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents
$ 10,920 $ 32,483 $ 11,780
Inventories
61,952 51,885 59,398
Receivables
7,881 12,939 8,787
Prepaid expenses and other current assets
13,365 12,737 13,752
Total current assets
94,118 110,044 93,717

Property and equipment, net of accumulated depreciation of $171,922; $172,333 and $179,584, respectively
76,718 74,924 71,984
Deferred tax assets
9,803 8,256 10,737
Other intangible assets, net
1,131 1,721 1,653
Other assets, net
2,571 4,650 4,806
Total Assets
$ 184,341 $ 199,595 $ 182,897

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable
$ 16,855 $ 27,861 $ 26,242
Accrued expenses
13,055 15,897 11,918
Gift cards and customer deposits
27,584 37,070 27,094
Deferred revenue
1,768 2,029 2,030
Other current liabilities
88 - -
Total current liabilities
59,350 82,857 67,284

Deferred rent
17,914 15,438 15,278
Deferred franchise revenue
504 565 603
Other liabilities
1,643 1,623 1,008

Stockholders' equity:

Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares issued or outstanding at September 30, 2017, December 31, 2016 and October 1, 2016
- - -
Common stock, par value $0.01, Shares authorized: 50,000,000; Issued and outstanding: 15,918,117; 15,856,927 and 15,850,629 shares, respectively
159 159 159
Additional paid-in capital
69,972 68,001 67,197
Accumulated other comprehensive loss
(11,623 ) (12,727 ) (11,994 )
Retained earnings
46,422 43,679 43,362
Total stockholders' equity
104,930 99,112 98,724
Total Liabilities and Stockholders' Equity
$ 184,341 $ 199,595 $ 182,897

~~See accompanying notes to condensed consolidated financial statements.~~

	*October 28,*			*January 28,*			*October 29,*
	*2023*			*2023*			*2022*
	(Unaudited)						(Unaudited)
*ASSETS*
Current assets:
Cash and cash equivalents	$	24,800		$	42,198		$	12,023
Inventories, net		64,466			70,485			88,339
Receivables, net		13,908			15,374			15,894
Prepaid expenses and other current assets		13,592			19,374			10,379
Total current assets		116,766			147,431			126,635

Operating lease right-of-use asset		67,768			71,791			76,236
Property and equipment, net		51,914			50,759			46,264
Deferred tax assets		6,822			6,592			7,561
Other assets, net		7,273			4,221			3,105
Total Assets	$	250,543		$	280,794		$	259,801

*LIABILITIES AND STOCKHOLDERS' EQUITY*
Current liabilities:
Accounts payable	$	11,961		$	10,286		$	19,514
Accrued expenses		25,319			37,358			25,764
Operating lease liability short term		26,002			27,436			27,644
Gift cards and customer deposits		18,366			19,425			18,287
Deferred revenue and other		3,665			6,646			5,713
Total current liabilities		85,313			101,151			96,922

Operating lease liability long term		52,423			59,080			64,212
Other long-term liabilities		1,159			1,446			1,569

Stockholders' equity:
Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares issued or outstanding at October 28, 2023, January 28, 2023 and October 29, 2022		-			-			-
Common stock, par value $0.01, Shares authorized: 50,000,000; Issued and outstanding: 14,391,876, 14,802,338, and 14,718,368 shares, respectively		144			148			147
Additional paid-in capital		66,641			69,868			68,422
Accumulated other comprehensive loss		(12,319	)		(12,274	)		(12,336	)
Retained earnings		57,182			61,375			40,865
Total stockholders' equity		111,648			119,117			97,098
Total Liabilities and Stockholders' Equity	$	250,543		$	280,794		$	259,801

~~BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES~~
~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)~~
~~(Unaudited)~~
~~(Dollars in thousands, except share and per share data)~~

Thirteen weeks ended

Thirty-nine weeks ended

September 30,
2017

October 1,
2016

September 30,
2017

October 1,
2016

Revenues:

Net retail sales
$ 80,552 $ 81,870 $ 243,559 $ 249,854
Commercial revenue
1,304 1,322 5,037 2,601
Franchise fees
572 556 1,689 1,407
Total revenues
82,428 83,748 250,285 253,862

Costs and expenses:

Cost of merchandise sold - retail
44,916 46,461 133,686 137,778
Cost of merchandise sold - commercial
590 535 2,712 1,213
Selling, general and administrative
34,268 33,404 107,760 110,135
Store preopening
488 571 2,000 2,969
Interest expense (income), net
2 (19 ) (16 ) (58 )
Total costs and expenses
80,264 80,952 246,142 252,037

Income before income taxes
2,164 2,796 4,143 1,825
Income tax expense
723 955 1,470 767
Net income
$ 1,441 $ 1,841 $ 2,673 $ 1,058

Foreign currency translation adjustment
387 (298 ) 1,104 (2,023 )
Comprehensive (loss) income
$ 1,828 $ 1,543 $ 3,777 $ (965 )

Income per common share:

Basic
$ 0.09 $ 0.12 $ 0.17 $ 0.07
Diluted
$ 0.09 $ 0.11 $ 0.17 $ 0.07

Shares used in computing common per share amounts:

Basic
15,633,290 15,518,115 15,600,184 15,471,759
Diluted
15,816,265 15,691,004 15,789,851 15,650,143

~~See accompanying notes to condensed consolidated financial statements.~~

~~BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES~~
~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~
~~(Unaudited)~~
~~(Dollars in thousands)~~

Thirty-nine weeks ended

September 30,
2017

October 1,
2016

Cash flows from operating activities:

Net income
$ 2,673 $ 1,058
Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization
12,084 11,573
Stock-based compensation
2,681 2,259
Deferred taxes
1,840 (236 )
Provision for doubtful accounts
367 -
Impairment of store assets
82 298
(Gain) Loss on disposal of property and equipment
(220 ) 269
Change in assets and liabilities:

Inventories
(9,093 ) (6,296 )
Receivables
4,816 4,079
Prepaid expenses and other assets
(371 ) 363
Accounts payable and accrued expenses
(14,180 ) (22,663 )
Lease related liabilities
2,341 3,621
Gift cards and customer deposits
(9,682 ) (7,986 )
Deferred revenue
(337 ) (684 )
Net cash used in operating activities
(6,999 ) (14,345 )
Cash flows from investing activities:

Purchases of property and equipment
(12,502 ) (17,647 )
Purchases of other assets and other intangible assets
(287 ) (566 )
Proceeds from property insurance
310 -
Proceeds from sale or maturitiy of short term investments
- 1,461
Cash used in investing activities
(12,479 ) (16,752 )
Cash flows from financing activities:

Proceeds from the exercise of employee stock options, net of withholding tax payments
(465 ) (513 )
Payments made under capital leases
(56 ) -
Purchases of Company's common stock
(998 ) (1,469 )
Cash used in financing activities
(1,519 ) (1,982 )
Effect of exchange rates on cash
(566 ) (337 )
Net decrease in cash and cash equivalents
(21,563 ) (33,416 )
Cash and cash equivalents, beginning of period
32,483 45,196
Cash and cash equivalents, end of period
$ 10,920 $ 11,780

See accompanying notes to condensed consolidated financial statements.

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BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Dollars in thousands, except share and per share data)

	*Thirteen weeks ended*					*Thirty-nine weeks ended*
	*October 28,*			*October 29,*		*October 28,*			*October 29,*
	*2023*			*2022*		*2023*			*2022*
Revenues:
Net retail sales	$	100,411		$	99,229	$	315,972		$	308,001
Commercial revenue		6,020			4,125		17,685			12,464
International franchising		1,131			1,126		3,180			2,362
Total revenues		107,562			104,480		336,837			322,827

Costs and expenses:
Cost of merchandise sold - retail		47,551			47,354		146,165			149,341
Cost of merchandise sold - commercial		2,675			1,929		8,458			5,824
Cost of merchandise sold - international franchising		703			867		2,042			1,593
Total cost of merchandise sold		50,929			50,150		156,665			156,758
Consolidated gross profit		56,633			54,330		180,172			166,069
Selling, general and administrative expense		46,566			44,436		140,516			130,320
Interest (income) expense, net		(281	)		6		(524	)		27
Income before income taxes		10,348			9,888		40,180			35,722
Income tax expense		2,762			2,433		9,648			8,247
Net income	$	7,586		$	7,455	$	30,532		$	27,475

Foreign currency translation adjustment		(302	)		49		(45	)		134
Comprehensive income	$	7,284		$	7,504	$	30,487		$	27,609

Income per common share:
Basic	$	0.53		$	0.51	$	2.12		$	1.82
Diluted	$	0.53		$	0.51	$	2.10		$	1.78

Shares used in computing common per share amounts:
Basic		14,362,702			14,542,947		14,413,308			15,097,816
Diluted		14,438,795			14,760,586		14,563,974			15,412,130

See accompanying notes to condensed consolidated financial statements.

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BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

	*Thirty-nine weeks ended*
	*October 28,*			*October 29,*
	*2023*			*2022*

Cash flows provided by operating activities:
Net income	$	30,532		$	27,475
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization		9,540			9,295
Share-based and performance-based stock compensation		2,492			1,924
Provision/adjustments for doubtful accounts		(276	)		(154	)
Loss on disposal of property and equipment		85			108
Deferred taxes		(41	)		16
Change in assets and liabilities:
Inventories, net		5,729			(18,134	)
Receivables, net		895			(4,343	)
Prepaid expenses and other assets		2,511			1,354
Accounts payable and accrued expenses		(10,408	)		(894	)
Operating leases		(4,311	)		(4,771	)
Gift cards and customer deposits		(1,021	)		(2,573	)
Deferred revenue		(2,987	)		1,944
Net cash provided by operating activities		32,740			11,247
Cash flows used in investing activities:
Purchases of property and equipment		(11,124	)		(6,752	)
Net cash used in investing activities		(11,124	)		(6,752	)
Cash flows used in financing activities:
Proceeds from the exercise of employee equity awards, net of tax		(1,797	)		(1,671	)
Cash dividends paid		(22,098	)		(292	)
Purchases of Company’s common stock		(15,239	)		(24,172	)
Net cash used in financing activities		(39,134	)		(26,135	)
Effect of exchange rates on cash		120			818
Decrease in cash, cash equivalents, and restricted cash		(17,398	)		(20,822	)
Cash, cash equivalents and restricted cash, beginning of period		42,198			32,845
Cash, cash equivalents and restricted cash, end of period	$	24,800		$	12,023

Supplemental disclosure of cash flow information:
Cash and cash equivalents	$	24,413		$	11,582
Restricted cash from long-term deposits	$	387		$	441
Total cash, cash equivalents and restricted cash	$	24,800		$	12,023

Net cash paid during the period for income taxes	$	16,785		$	7,451

See accompanying notes to condensed consolidated financial statements.

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Notes to Condensed Consolidated Financial Statements

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)~~“Company”) pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ~~(SEC)~~(“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ~~(GAAP)~~(“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet of the Company as of ~~December 31, 2016~~January 28, 2023 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 ~~December 31, 2016,~~January 28, 2023, which were included in the Company’s ~~annual report~~Annual Report on Form ~~10-K~~10-K filed with the SEC on ~~March 16, 2017.~~April 13, 2023.

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 January 28, 2023. An update and supplement to these policies is needed for the Company's accounting for credit impairment as a result of a recently adopted accounting standard during the first quarter of fiscal 2023.

Receivables

Receivables consist primarily of amounts due to the Company in relation to wholesale and corporate product sales, franchisee royalties and product sales, tenant allowances, certain amounts due from taxing authorities, receivables due from insurance providers, and licensing revenue. The Company assesses the collectability of all receivables on an ongoing basis by considering its historical credit loss experience, current economic conditions, and other relevant factors. At the beginning of fiscal 2023, the Company adopted ASU No.2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “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. Upon adoption, the Company recognized a charge of $0.8 million to the opening balance of retained earnings which represents a reduction in its account receivable balance associated with expected credit losses.

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2. Revenue

Currently, most of the Company’s revenue is derived from 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 93% of consolidated revenue for the third quarter of fiscal 2023. 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, by reportable segment.

The Company’s direct-to-consumer segment includes the operating activities of corporately-operated stores, other retail-delivered operations 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 customers.

For the Company’s gift cards, revenue, including any related gift card discounts, is deferred for single transactions until redemption. Historically, three-quarters of gift cards are redeemed within three years of issuance and over the last three years, approximately 60% of gift cards issued have been redeemed within the firsttwelve months. In addition, unredeemed gift cards or breakage revenue is recorded in proportion to the customer’s redemption period using an estimated breakage rate based on historical experience. In regard to the consolidated balance sheet, contract liabilities for gift cards are classified as gift cards and customer deposits.

Subsequent to stores reopening following shutdowns caused by the COVID-19 pandemic, the Company has 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 utilizes historical redemption data to develop a model to analyze the amount of breakage expected for gift cards sold to consumers and business partners. The Company continues to evaluate expected breakage annually and adjusts the breakage rates in the fourth quarter of each year, or other times, if significant changes in customer 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.

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 U.K. with certificates historically expiring in six 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.

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. 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. The license agreements provide the customer with 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 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.

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 ~~adopted Accounting Standards Update (ASU) No. 2016-09,~~ ~~Compensation – Stock Compensation: Improvements~~also incurs expenses directly related to ~~Employee Share-Based Payment Accounting~~~~, effective January 1, 2017. The Company made an accounting policy election~~the startup of new franchises, which may include finder’s fees, legal and travel costs, expenses related to ~~account for forfeitures as they occur. The impact of this election, along with the adoption~~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 provisions of the standard in the first quarter of 2017, was to increase deferred tax assets by $1.6 million, increase additional paid-in-capital by $0.3 million, increase retained earnings by $1.9 million and decrease taxes payable by $0.6 million.

costs as incurred. Additionally, the Company ~~early adopted ASU No. 2016-16,~~ ~~Income Taxes – Intra-Entity Transfers~~amortizes these capitalized costs into expense in the same pattern as the development fee's recording of ~~Assets Other Than Inventory~~~~, effective January 1, 2017. Using~~revenue as described previously. These capitalized costs for the ~~modified retrospective method,~~thirteen and thirty-nine weeks ended October 28, 2023 are not material to the ~~impact~~financial statements.

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3. Leases

The majority of the ~~adoption~~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 ~~standard~~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 thirty-nine weeks ended October 28, 2023 and October 29, 2022 (in thousands).

	*Thirteen weeks ended*				*Thirty-nine weeks ended*
	*October 28, 2023*		*October 29, 2022*		*October 28, 2023*		*October 29, 2022*

Operating lease costs	$	9,261	$	8,905	$	27,357	$	25,874
Variable lease costs ⁽¹⁾		2,134		2,039		6,374		6,228
Short term lease costs		34		19		74		46
Total Operating Lease costs	$	11,429	$	10,963	$	33,805	$	32,148

(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 thirty-nine weeks ended October 28, 2023 and October 29, 2022 (in thousands).

	*Thirteen weeks ended*				*Thirty-nine weeks ended*
	*October 28, 2023*		*October 29, 2022*		*October 28, 2023*		*October 29, 2022*
Operating cash flows for operating leases	$	9,994	$	9,497	$	29,775	$	27,772

As of October 28, 2023 and October 29, 2022, the weighted-average remaining operating lease term was 4.0 years and 4.3 years, respectively, and the weighted-average discount rate was 6.5% and 5.7%, respectively, for operating leases recognized on the Company's condensed consolidated balance sheets.

For the thirteen and thirty-nine weeks ended October 28, 2023 and the thirteen and thirty-nine weeks ended October 29, 2022 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 firstfive years and total of the remaining years to the operating lease liabilities recorded on the balance sheet (in thousands).

Operating Leases
2023	$	1,306
2024		31,110
2025		20,855
2026		12,765
2027		7,994
Thereafter		15,797
Total minimum lease payments		89,827
Less: amount of lease payments representing interest		(11,402	)
Present value of future minimum lease payments		78,425
Less: current obligations under leases		(26,002	)
Long-term lease obligations	$	52,423

As of October 28, 2023, the Company had additional executed leases that had not yet commenced with operating lease liabilities of $12.9 million. These leases are expected to commence in the ~~first~~fourth quarter of ~~2017 was~~fiscal 2023 and the first quarter of fiscal 2024 with lease terms of five to ~~increase deferred tax assets by $1.0 million, decrease other assets, net by $2.3 million and decrease retained earnings by $1.3 million.~~ten years.

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~~2. Prepaid Expenses and~~4. Other~~Current~~ Assets

Prepaid expenses and other current assets consist of the following (in thousands):

September 30,

December 31,

October 1,

2017

2016

2016

Prepaid rent
$ 7,162 $ 7,191 $ 6,986
Other
6,203 5,546 6,766
Total
$ 13,365 $ 12,737 $ 13,752

	*October 28,*		*January 28,*		*October 29,*
	*2023*		*2023*		*2022*
Prepaid occupancy ⁽¹⁾	$	2,414	$	2,196	$	2,630
Prepaid merchandise ⁽²⁾		-		6,047		-
Prepaid insurance		550		1,221		213
Prepaid gift card fees		706		835		206
Prepaid royalties		540		301		1,202
Prepaid taxes ⁽³⁾		4,092		73		493
Other ⁽⁴⁾		5,290		8,701		5,635
Total	$	13,592	$	19,374	$	10,379

	(1)	Prepaid occupancy consists of prepaid expenses related to variable non-lease components.
	(2)	Prepaid merchandise consists of prepaid purchase orders of inventory that are not in transit.
	(3)	Prepaid taxes consist of prepaid federal and state income tax.
	(4)	Other consists primarily of prepaid expense related to information technology maintenance contracts and software as a service.

Other non-current assets consist of the following (in thousands):

	*October 28,*		*January 28,*		*October 29,*
	*2023*		*2023*		*2022*
Entertainment production asset ⁽¹⁾	$	6,057	$	2,939	$	2,126
Deferred compensation		875		853		544
Other ⁽²⁾		341		429		435
Total	$	7,273	$	4,221	$	3,105

	(1)	Entertainment production asset includes the direct costs, production overhead and development costs in producing entertainment assets such as films or music.
	(2)	Other consists primarily of deferred financing costs related to the Company's credit facility.

3.5. Accrued Expenses

Accrued expenses consist of the following (in thousands):

	September 30,		December 31,		October 1,		*October 28,*		*January 28,*		*October 29,*
	2017		2016		2016		*2023*		*2023*		*2022*
Accrued wages, bonuses and related expenses	$	7,465	$	5,596	$	5,216	$	17,470	$	23,767	$	17,174
Sales tax payable		2,105		5,075		2,027
Sales and value added taxes payable								2,466		4,561		2,209
Accrued rent and related expenses(1)		3,450		4,615		3,919		954		1,512		899
Current income taxes payable		35		611		756		329		3,418		1,382
Accrued expense - other ⁽²⁾								4,100		4,100		4,100
Total	$	13,055	$	15,897	$	11,918	$	25,319	$	37,358	$	25,764

(1)

Accrued rent and related expenses consist of accrued costs associated with non-lease components.

(2)

Accrued expense - other consists of accrued costs associated with a legal reserve accrual.

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4.6. Stock-based Compensation

On ~~March~~ April 14, ~~2017,~~2020, the ~~Company~~’s Board of Directors (the ~~Board)~~“Board”) of Build-A-Bear Workshop, Inc. (the “Company”) adopted, subject to stockholder approval, the Build-A-Bear Workshop, Inc. ~~2017~~2020 Omnibus Incentive Plan (the “2020Incentive ~~Plan)~~Plan”). On ~~May~~June 11, ~~2017, at the Company’s 2017 Annual Meeting of Stockholders,~~ 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 “Annual Meeting”), the Company’s stockholders approved the Restated 2020Incentive Plan. The Restated 2020 Incentive Plan, which is administered by the Compensation and Development Committee of the Board, permits the grant of stock options (including both incentive and non-qualified stock options), stock appreciation rights, ~~restricted stock, cash and~~ other stock-based awards, ~~some of which may be performance-based~~including restricted stock and restricted stock units, cash-based awards, and performance awards pursuant to the terms of the Restated 2020Incentive Plan. The ~~Board may amend, modify or terminate the Incentive Plan at any time, except as otherwise provided in the Incentive Plan. The~~Restated 2020 Incentive Plan will terminate on ~~March 14, 2027,~~ 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 2020Incentive Plan ~~is 1,000,000,~~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 ~~of stock~~that are subject to outstanding awards made under the ~~Company’s Third Amended and Restated 2004 Stock~~Build-A-Bear Workshop, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) that on or after ~~March 21, 2017~~ April 14, 2020 may be forfeited, expire or be settled for cash.

For the thirteen ~~and thirty-nine~~ weeks ended ~~September 30, 2017,~~October 28, 2023 and October 29, 2022, selling, general and administrative expense ~~includes $0.8~~included stock-based compensation expense of $0.7 million and ~~$2.7~~$0.6 million, ~~respectively, of stock-based compensation expense.~~respectively. For the ~~thirteen and~~ thirty-nine weeks ended October ~~1, 2016,~~28, 2023 and October 29, 2022 selling, general, and administrative expense ~~includes $0.8~~included stock-based compensation expense of $2.5 million and ~~$2.3~~$1.9 million, ~~respectively, of stock-based compensation expense.~~respectively. As of ~~September 30, 2017,~~October 28, 2023, there was ~~$4.6~~$1.7 million of total unrecognized compensation expense related to unvested restricted stock ~~and option~~ awards which is expected to be recognized over a weighted-average period of ~~1.5~~1.7 years.

The ~~following~~following table is a summary of the balances and activity for stock options for the thirty-nine weeks ended ~~September 30, 2017:~~October 28, 2023:

	Options				*Options*
	Shares		Weighted Average Exercise Price		*Shares*			*Weighted Average Exercise Price*
Outstanding, December 31, 2016		757,784	$	9.91
Outstanding, January 28, 2023						177,519		$	14.20
Granted		72,051		8.85		-			-
Exercised		1,269		6.36		(143,115	)		12.87
Forfeited		26,795		13.45		-			-
Canceled or expired		10,204		12.51		-			-
Outstanding, September 30, 2017		791,567	$	9.67
Outstanding, October 28, 2023						34,404		$	19.73

The following table is a summary of the balances and activity ~~for the~~ ~~plan~~ related to time-based and performance-based restricted stock for the thirty-nine weeks ended ~~September 30, 2017:~~October 28, 2023:

Restricted Stock

Performance Shares

Shares

Weighted Average Grant Date Fair Value

Shares

Weighted Average Grant Date Fair Value

Outstanding, December 31, 2016
316,116 $ 13.30 241,141 $ 15.39
Granted
258,060 9.18 83,897 8.85
Vested
178,424 12.20 6,472 20.54
Forfeited
33,016 12.51 15,247 14.28
Canceled or expired
— — 13,704 13.68
Outstanding, September 30, 2017
362,736 $ 10.98 289,615 $ 13.66

	*Time-Based Restricted Stock*					*Performance-Based Restricted Stock*
	*Shares*			*Weighted Average Grant Date Fair Value*		*Shares*			*Weighted Average Grant Date Fair Value*
Outstanding, January 28, 2023 ⁽¹⁾		287,983		$	8.78		295,048		$	8.13
Granted ⁽¹⁾		65,759			23.52		65,254			24.75
Vested		(208,620	)		7.20		-			-
Adjustment for performance achievement		-			-		57,756			2.87
Earned and Vested		-			-		(215,130	)		2.78
Forfeited ⁽¹⁾		(4,838	)		12.91		(3,466	)		18.03
Outstanding, October 28, 2023 ⁽¹⁾		140,284		$	17.89		199,462		$	17.62

(1)

Performance-based restricted stock outstanding, granted, and forfeited are presented at 100% of target.

The total fair value of shares vested during the thirty-nine weeks ended ~~September 30, 2017~~ October 28, 2023 and October ~~1, 2016~~29, 2022 was ~~$2.3~~$2.1 million and ~~$1.7~~$2.0 million, respectively.

~~In March 201~~7, the Company awarded three-year performance-based restricted stock subject to the achievement of pre-established consolidated total pre-tax income goals for fiscal 2017, 2018 and 2019. These shares have a payout opportunity ranging from 25% to 200% of the target number of shares. In 2016, the Company awarded one and three-year performance-based restricted stock subject to the achievement of pre-established net income objectives for fiscal 2016. In 2017, 13,704 of the one-year performance shares issued in fiscal 2016 were canceled as the pre-established pre-tax income objectives for 2016 were not achieved.

The outstanding performance shares as of ~~September 30, 2017~~October 28, 2023 consist of the following:

	*Performance* *Shares*
~~Earned shares subject to time-based restrictions at actual~~		~~6,325~~
Unearned shares subject to performance-based restrictions at target:
~~2015~~2021 - ~~2017~~2023 consolidated, ~~total revenues~~cumulative earnings before interest, taxes, depreciation and amortization (EBITDA) objectives		~~50,000~~39,821
~~2016~~2021 - ~~2018~~2023 consolidated ~~total revenues~~revenue growth objectives		~~149,393~~13,274
~~2017~~2022 - ~~2019~~2024 consolidated, ~~pre-tax income~~earnings before interest, taxes, depreciation and amortization (EBITDA) growth objectives		~~83,897~~60,835
2022 - 2024 consolidated revenue growth objectives		20,278
2023 - 2025 consolidated pre-tax income growth objectives		42,415
2023 - 2025 consolidated revenue growth objectives		22,839
Performance shares outstanding, ~~September 30, 2017~~October 28, 2023		~~289,615~~199,462

5.7. Income Taxes

The Company's effective tax rate was ~~33.4%~~26.7% and ~~35.5%~~24.0% for the thirteen and thirty-nine weeks ended ~~September 30, 2017,~~October 28, 2023, respectively, compared to ~~34.2%~~24.6% and ~~42.0%~~23.1% for the thirteen and thirty-nine weeks ended October ~~1, 2016,~~29, 2022, respectively. The ~~2017~~2023 and 2022 effective tax ~~rate~~rates differed from the statutory rate of ~~34%~~21% primarily due to ~~the implementation of the new accounting standard related to the accounting for~~state income tax expense partially offset by the tax impact of equity awards ~~vesting and other discrete items. The fluctuation~~vesting. In addition, in the ~~2016 effective tax rate was due primarily to~~third quarter of fiscal 2023 and 2022, the ~~effect of permanent differences.~~Company remains in a full valuation allowance in certain foreign jurisdictions.

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~~6. Stockholders~~’8. Stockholders’ Equity

The following table sets forth the changes in stockholders’ equity (in thousands) for the ~~thirty-nine~~thirteen weeks ended ~~September 30, 2017~~ October 28, 2023 and October ~~1, 2016:~~29, 2022 (in thousands):

Thirty-nine weeks ended

September 30,
2017

October 1,
2016

Beginning balance
$ 99,112 $ 99,414
Stock-based compensation
2,681 2,259
Shares issued under employee stock plans
(465 ) (513 )
Adoption of new accounting standards
822 -
Share repurchase and retirement
(998 ) (1,469 )
Other comprehensive income (loss)
1,104 (2,023 )
Net income
2,673 1,058
Other 1 (2 )
Ending balance
$ 104,930 $ 98,724

	*For the thirteen weeks ended October 28, 2023*															*For the thirteen weeks ended October 29, 2022*

	*Common*									*Retained*						*Common*									*Retained*
	*stock*			*APIC (1)*			*AOCI (2)*			*earnings*			*Total*			*stock*			*APIC (1)*			*AOCI (2)*			*earnings*			*Total*
Balance, beginning	$	145		$	66,773		$	(12,017	)	$	52,965		$	107,866		$	150		$	69,409		$	(12,385	)	$	36,690		$	93,864
Issuance of Restricted Stock														-
Shares issued under employee stock plans					175									175						194									194
Stock-based compensation					363									363						368									368
Shares withheld in lieu of tax withholdings														-															-
Share Repurchase		(1	)		(670	)					(3,369	)		(4,040	)		(3	)		(1,553	)					(3,233	)		(4,789	)
Cash Dividends														-															-
Other														-						4						(47	)		(43	)
Other comprehensive (loss) income								(302	)					(302	)								49						49
Net income											7,586			7,586												7,455			7,455
Balance, ending	$	144		$	66,641		$	(12,319	)	$	57,182		$	111,648		$	147		$	68,422		$	(12,336	)	$	40,865		$	97,098

~~On August 21, 2017,~~(1) Additional paid-in capital (“APIC”)

(2) Accumulated other comprehensive loss (“AOCI”)

The following table sets forth the ~~Company’s~~changes in stockholders’ equity (in thousands) for the thirty-nine weeks ended October 28, 2023 and October 29, 2022 (in thousands):

	*For the thirty-nine weeks ended October 28, 2023*															*For the thirty-nine weeks ended October 29, 2022*

	*Common*									*Retained*						*Common*									*Retained*
	*stock*			*APIC (1)*			*AOCI (2)*			*earnings*			*Total*			*stock*			*APIC (1)*			*AOCI (2)*			*earnings*			*Total*
Balance, beginning	$	148		$	69,868		$	(12,274	)	$	61,375		$	119,117		$	162		$	75,490		$	(12,470	)	$	30,501		$	93,683
Adoption of new accounting standard											(785	)
Subtotal	$	148		$	69,868		$	(12,274	)	$	60,590		$	118,332		$	162		$	75,490		$	(12,470	)	$	30,501		$	93,683
Issuance of Restricted Stock														-
Shares issued under employee stock plans		4			2,436									2,440			2			1,004									1,006
Stock-based compensation					1,121									1,121						1,175									1,175
Shares withheld in lieu of tax withholdings		(2	)		(3,638	)								(3,640	)		(1	)		(2,178	)								(2,179	)
Share Repurchase		(6	)		(3,146	)					(12,087	)		(15,239	)		(16	)		(7,073	)					(17,083	)		(24,172	)
Other											196			196						4						(28	)		(24	)
Dividend											(22,049	)		(22,049	)														-
Other comprehensive (loss) income								(45	)					(45	)								134						134
Net income											30,532			30,532												27,475			27,475
Balance, ending	$	144		$	66,641		$	(12,319	)	$	57,182		$	111,648		$	147		$	68,422		$	(12,336	)	$	40,865		$	97,098

(1) Additional paid-in capital (“APIC”)

(2) Accumulated other comprehensive loss (“AOCI”)

For the thirty-nine weeks ended October 28, 2023, the Company recorded credit impairment charges of $0.8 million on trade receivables into retained earnings as a result of the adoption of ASC 326 - Credit Impairment.

During the thirteen and thirty-nine weeks ended October 28, 2023, the Company utilized $4.0 million in cash to repurchase 146,028 shares and utilized $15.2 million in cash to repurchase 672,734 shares, respectively, under its $50.0 million program that was authorized by its Board of Directors on August 31, 2022. The Company's Board of Directors also authorized a ~~share repurchase program~~special cash dividend of up to $20 million. Under this program, the Company repurchased $1.0 million of shares through September 30, 2017. Under this program, the Company repurchased 112,325 shares at an average price of $8.88$1.50 per share ~~for an aggregate amount~~that was paid on April 6, 2023, to all stockholders of ~~$1.0 million.~~record as of March 23, 2023.

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7. 9.Incomeper Share

~~The Company uses the two-class method to compute basic and diluted~~ ~~net income or loss per common share. In periods of net loss, no effect is given to the Company’s participating securities as they do not contractually participate in the losses of the Company.~~ The following table sets forth the computation of basic and diluted net income per share (in thousands, except share and per share data):

	Thirteen weeks ended				Thirty-nine weeks ended				*Thirteen weeks ended*				*Thirty-nine weeks ended*
	September 30, 2017		October 1, 2016		September 30, 2017		October 1, 2016		*October 28,*		*October 29,*		*October 28,*		*October 29,*
									*2023*		*2022*		*2023*		*2022*
NUMERATOR:
Net income before allocation of earnings to participating securities	$	1,441	$	1,841	$	2,673	$	1,058
Less: Earnings allocated to participating securities		11		39		33		22
Net income after allocation of earnings to participating securities	$	1,430	$	1,802	$	2,640	$	1,036
Net income									$	7,586	$	7,455	$	30,532	$	27,475

DENOMINATOR:
Weighted average number of common shares outstanding - basic		15,633,290		15,518,115		15,600,184		15,471,759		14,362,702		14,542,947		14,413,308		15,097,816
Dilutive effect of share-based awards:		182,975		172,889		189,667		178,384		76,093		217,639		150,666		314,314
Weighted average number of common shares outstanding - dilutive		15,816,265		15,691,004		15,789,851		15,650,143		14,438,795		14,760,586		14,563,974		15,412,130
Basic income per common share attributable to Build-A-Bear Workshop, Inc. stockholders:	$	0.09	$	0.12	$	0.17	$	0.07
Diluted income per common share attributable to Build-A-Bear Workshop, Inc. stockholders	$	0.09	$	0.11	$	0.17	$	0.07

Basic net income per common share									$	0.53	$	0.51	$	2.12	$	1.82
Diluted net income per common share									$	0.53	$	0.51	$	2.10	$	1.78

In calculating the diluted income per share for the thirteen and thirty-nine ~~week periods~~ weeks ended ~~September 30, 2017, options to purchase 382,317~~October 28, 2023, there were zero and ~~321,998~~43,673 shares of common stock, respectively, 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 thirty-nine ~~week periods~~ weeks ended October ~~1, 2016, the number~~29, 2022, there were 9,071 and 106,770 shares of ~~options to purchase~~ common ~~shares~~stock, respectively, that were ~~excluded from~~outstanding at the ~~calculation was 302,628 and 253,374 shares, respectively.~~end of the period that were not included in the computation of diluted income per share due to their anti-dilutive effect.

8.10. Comprehensive Income~~Income~~ ~~(Loss)~~

The difference between comprehensive income or loss and net income or loss ~~results from~~is the result of foreign currency translation adjustments on the balance sheets of subsidiaries whose functional currency is not the U~~.S. Dollar.~~U.S. dollar. The accumulated other comprehensive ~~income (loss)~~loss balance ~~at September 30, 2017~~ on October 28, 2023 and October ~~1, 2016~~29, 2022 was comprised entirely of foreign currency translation. For the thirteen ~~and thirty-nine~~ weeks ended ~~September 30, 2017~~ October 28, 2023 and October ~~1, 2016, there were~~29, 2022, the Company had no reclassifications out of accumulated other comprehensive loss.

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9.11. Segment Information

The ~~Company~~’sCompany’s operations are conducted through three operating segments consisting of direct-to-consumer ~~(DTC)~~(“DTC”), commercial and international franchising. The DTC segment includes the operating activities of ~~company-owned stores in the United States, Canada, the United Kingdom, Ireland, Denmark and China~~corporately-operated locations and other retail delivery operations in the U.S., Canada, Ireland and the U.K., 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 (outside of the United Kingdom, Ireland and Denmark), Asia, Australia, the Middle East, Africa and Mexico. The commercial segment includes the Company’s transactions with other businesses, mainly comprised of licensing the Company’s intellectual properties for third ~~party~~-party use and wholesale activities. 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.

Following is a summary of the financial information for the Company’s reportable segments (in thousands):

	Direct-to-				International				*Direct-to-*				*International*
	Consumer		Commercial		Franchising		Total		*Consumer*		*Commercial*		*Franchising*		*Total*

Thirteen weeks ended September 30, 2017
Thirteen weeks ended October 28, 2023
Net sales to external customers	$	80,552	$	1,304	$	572	$	82,428	$	100,411	$	6,020	$	1,131	$	107,562
Income before income taxes		1,098		563		503		2,164		7,233		2,740		375		10,348
Capital expenditures		4,607		-		157		4,764		4,986		-		-		4,986
Depreciation and amortization		4,185		1		15		4,201		3,152		79		-		3,231
Thirteen weeks ended October 1, 2016
Thirteen weeks ended October 29, 2022
Net sales to external customers	$	81,870	$	1,322	$	556	$	83,748	$	99,229	$	4,125	$	1,126	$	104,480
Income before income taxes		1,881		667		248		2,796		7,771		2,009		108		9,888
Capital expenditures		6,321		-		10		6,331		2,685		-		-		2,685
Depreciation and amortization		3,935		1		18		3,954		2,924		95		-		3,019
Thirty-nine weeks ended September 30, 2017

Thirty-nine weeks ended October 28, 2023
Net sales to external customers	$	243,559	$	5,037	$	1,689	$	250,285	$	315,972	$	17,685	$	3,180	$	336,837
Income before income taxes		1,493		2,112		538		4,143		31,225		7,882		1,073		40,180
Capital expenditures		12,614		-		175		12,789		11,124		-		-		11,124
Depreciation and amortization		12,034		2		48		12,084		9,266		274		-		9,540
Thirty-nine weeks ended October 1, 2016
Thirty-nine weeks ended October 29, 2022
Net sales to external customers	$	249,854	$	2,601	$	1,407	$	253,862	$	308,001	$	12,465	$	2,361	$	322,827
Income before income taxes		429		1,080		316		1,825		29,174		5,705		843		35,722
Capital expenditures		18,178		-		35		18,213		6,752		-		-		6,752
Depreciation and amortization		11,506		2		65		11,573		8,888		407		-		9,295
Total Assets as of:
September 30, 2017	$	176,159	$	5,998	$	2,184	$	184,341
October 1, 2016	$	174,510	$	5,968	$	2,419	$	182,897
October 28, 2023									$	238,604	$	10,753	$	1,186	$	250,543
January 28, 2023										272,221		7,466		1,107		280,794
October 29, 2022										253,595		5,045		1,161		259,801

The ~~Company~~’sCompany’s reportable segments are primarily determined by the types of products and services that ~~each offers.~~they offer. Each reportable segment may operate in many geographic areas. ~~The Company allocates revenues to~~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								*North*
	America ⁽¹⁾		Europe ⁽²⁾		Other ⁽³⁾		Total		*America (1)*		*Europe (2)*		*Other (3)*		*Total*
Thirteen weeks ended September 30, 2017
Thirteen weeks ended October 28, 2023
Net sales to external customers									$	93,431	$	13,037	$	1,094	$	107,562
Thirteen weeks ended October 29, 2022
Net sales to external customers									$	90,515	$	12,851	$	1,114	$	104,480

Thirty-nine weeks ended October 28, 2023
Net sales to external customers	$	67,036	$	14,812	$	580	$	82,428	$	297,631	$	36,822	$	2,384	$	336,837
Property and equipment, net		67,073		9,612		33		76,718		48,631		3,283		0		51,914
Thirteen weeks ended October 1, 2016
Thirty-nine weeks ended October 29, 2022
Net sales to external customers	$	68,227	$	14,955	$	566	$	83,748	$	282,706	$	37,754	$	2,367	$	322,827
Property and equipment, net		62,377		8,385		1,222		71,984		43,898		2,366		0		46,264
Thirty-nine weeks ended September 30, 2017
Net sales to external customers	$	207,863	$	40,905	$	1,517	$	250,285
Property and equipment, net		67,073		9,612		33		76,718
Thirty-nine weeks ended October 1, 2016
Net sales to external customers	$	209,105	$	43,592	$	1,165	$	253,862
Property and equipment, net		62,377		8,385		1,222		71,984

For purposes of this table only:

~~(1)~~(1) North America includes corporately-operated locations in the United States ~~Canada, Puerto Rico~~ and ~~franchise business in Mexico~~ Canada.

~~(2)~~(2) Europe includes corporately-operated locations in the ~~United Kingdom,~~U.K. and Ireland ~~Denmark~~ and ~~franchise businesses~~sales to wholesale customers in ~~Europe~~ Europe.

~~(3)~~(3) Other includes franchise businesses outside of North America and ~~Europe and, beginning in 2016, a company-owned store in China~~ Europe.

Table of Contents

1012. Contingencies.~~Contingencies~~

In the normal course of business, the Company is subject to ~~regular examination by various taxing authorities for years not closed by the statute of limitations.~~legal proceedings, government inquiries and claims, and other commercial disputes. If one or more of these ~~examinations~~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 ~~this type~~these types of ~~contingency~~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 ~~United Kingdom~~U.K. customs authority in 2012 ~~have been~~ 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 ~~United Kingdom~~U.K. customs authority ~~is contesting~~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 ~~September 30, 2017,~~October 28, 2023, the Company had a gross receivable balance of ~~$3.5~~$4.5 million and a reserve of ~~$2.8~~$3.5 million, leaving a net receivable of ~~$0.7~~$1.0 million. ~~However, the~~The Company ~~continues to vigorously dispute the customs audit findings and~~ 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.

11~~. Recently Issued Accounting Pronouncements~~

In ~~May 2014,~~August 2021, a putative class action lawsuit was filed against Build-A-Bear Workshop, Inc., asserting claims under the ~~FASB issued Accounting Standards Update No. 2014-09,~~ ~~Revenue from Contracts~~Telephone Consumer Protection Act (the "TCPA") alleging that the Company continued to send marketing text messages to mobile phone numbers registered on the National Do Not Call Registry after allegedly opting-out of receiving them. Statutory damages under the TCPA are assessed at $500 per violation (i.e., per text message), and up to $1,500 per violation if the violation was knowing or willful. The Company has reached a settlement with ~~Customers (ASU 2014-09),~~the Plaintiff and an insurance carrier which ~~will replace most existing revenue recognition guidance under U.S. GAAP. The core principle of~~has been approved by the ~~ASU is that an entity should recognize revenue~~Court and did not result in a significant expense for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09 will be effective for the Company beginning in fiscal 2018, and allows for both retrospective and modified retrospective methods of adoption. Early adoption beginning in fiscal 2017 is permitted. In 2016, the Company established a cross-functional team to use a bottom-up approach to assess the impact of the new standard. The team has reviewed current accounting policies and practices to identify potential differences that would result from applying the provisions of the new standard to our existing revenue contracts. To date, management has reviewed all of the Company’s revenue sources and contracts. Internal controls have been designed and an accounting policy has been developed. The Company expects the most significant impact to result from changes to the accounting for deferred revenue, specifically related to gift cards. The Company will adopt ASU 2014-09 effective the first day of fiscal 2018 using the modified retrospective method.Company.

~~In February 2016, the FASB issued Accounting Standards Update No. 2016-02,~~ ~~Leases~~ ~~(ASU 2016-02), which will replace most existing lease accounting guidance in U.S. GAAP. The core principle~~

Table of the ASU is that an entity should recognize the rights and obligations resulting from leases as assets and liabilities. ASU 2016-02 requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. ASU 2016-02 will be effective for the Company beginning in fiscal 2019, and requires the modified retrospective method of adoption. Early adoption is permitted. The Company is in the process of determining timing of adoption and assessing the impact of ASU 2016-02 on its consolidated financial statements.Contents

~~12. Subsequent Event~~

On October 31, 2017, the Company drew $4.0 million on its line of credit. This balance is expected to fluctuate throughout the remainder of the fourth quarter and is expected to be repaid before the end of the year.

Item 2. ~~Management~~’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Notice Regarding Forward-Looking Statements

The following ~~Management~~’sManagement’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 ~~the Company’s annual report~~our Annual Report on Form 10-K for the fiscal year ended ~~December 31, 2016,~~January 28, 2023, as filed with the SEC, and include the following:

	●	any uncertainty or decline in general global economic conditions, ~~may deteriorate, which~~caused by inflation, rising interest rates, geo-political conflicts, or other external factors, could lead to disproportionately reduced discretionary consumer spending and a corresponding reduction in demand for our products and have an adverse effect on our liquidity and profitability;
	●	consumer interests can change rapidly, and our success depends on the ongoing effectiveness of our marketing and online initiatives to build consumer affinity for our brand and drive consumer demand for our products ~~which represent relatively discretionary spending;~~ and services;

●

~~customer traffic may decrease in~~we depend upon the shopping malls ~~where we~~and tourist locations in which our stores are located ~~on which we depend~~ to attract ~~guests to~~guests. Continued or further volatility in retail consumer traffic could adversely affect our ~~stores;~~

financial performance and profitability;

	●	weglobal or regional health pandemics or epidemics, such as the COVID-19 pandemic, could negatively impact our business, financial position and results of operations;
	●	our profitability could be adversely affected by fluctuations in petroleum products prices;
	●	our business may be adversely impacted at any time by a variety of significant competitive threats;
	●	if we are unable to generate interest in and demand for our interactive retail experience orand products, including being able to identify and respond to consumer preferences in a timely ~~fashion;~~

●

manner, our ~~marketing~~sales, financial condition and ~~on-line initiatives may not be effective in generating sufficient levels of brand awareness and guest traffic;~~

●

~~the availability and costs of our products~~profitability could be adversely ~~affected by risks associated with international manufacturing and trade, including foreign currency fluctuation~~;

affected;

	●	~~we may suffer disruptions, failures or security breaches~~failure to successfully execute our omnichannel and brand expansion strategy and the cost of our ~~information technology infrastructure or~~investments in e-commerce and digital transformation may ~~improperly obtain or be~~materially adversely affect our financial condition and profitability;
	●	if we are unable to ~~adequately protect customer information in violation of privacy or security laws or customer expectations;~~

●

~~we may be unable to generate comparable sales growth;~~

●

~~we may be unable to effectively operate or manage the overall portfolio of our company-owned stores;~~

●

~~we may be unable to~~ renew, renegotiate or replace our store leases or enter into leases for new stores on favorable terms, or ~~in favorable locations, or may~~if we violate any of the terms of our current ~~leases;~~

leases, our revenue and profitability could be harmed;

●

~~we may not be able to operate our international~~ ~~Company-owned stores profitably;~~

●

we are subject to risks associated with technology and digital operations;

●

we may not be able to evolve our ~~products~~store locations over time to align with market trends, successfully diversify our store formats and business models in accordance with our strategic goals or ~~Build-A-Bear branded products sold by~~otherwise effectively manage our ~~licensees could fail to meet current safety standards or~~ ~~become subject to recalls or product liability claims that~~overall portfolio of stores which could adversely ~~impact~~affect our ~~financial performance~~ability to grow and could significantly harm our ~~reputation among consumers;~~

profitability;

●

~~we may lose key personnel, be unable to hire qualified additional personnel, or experience turnover~~our company-owned distribution center that services the majority of our ~~management team;~~

stores in North America and our third-party distribution center providers used in the western U.S. and Europe may be required to close and operations may experience disruptions or may operate inefficiently;

●

we ~~are susceptible to disruption in our inventory flow due to our reliance~~rely on a few ~~vendors;~~

global supply chain vendors to supply substantially all of our materials and merchandise, and significant price increases or any disruption in their ability to deliver materials and merchandise could harm our ability to source products and supply inventory to our stores;

	●	we may not be able to operate our international corporately-operated locations profitability;
	●	our merchandise is manufactured by foreign manufacturers and we transact business in various foreign countries, and the availability and costs of our products, as well as our product pricing, may be negatively affected by risks associated with international manufacturing and trade and foreign currency fluctuations;
	●	if we are unable to effectively 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;

	●	we are subject to a number of risks related to disruptions, failures or security breaches of our information technology infrastructure. If we improperly obtain or are unable to protect our data or violate privacy or security laws or expectations, we could be subject to liability as well as damage to our reputation;
	●	we may fail to renew, register or otherwise protect our trademarks or other intellectual property and may be sued by third parties for infringement or misappropriation of their proprietary rights, which could be costly, distract our management and personnel and result in the diminution in value of our trademarks and other important intellectual property;

●

we may suffer negative publicity or be sued ~~due to violations of labor laws or unethical practices by~~if the manufacturers of our ~~merchandise;~~

merchandise or of Build-A-Bear branded merchandise sold by our licensees ship any products that do not meet current safety standards or production requirements or if such products are recalled or cause injuries;

●

~~we may be unable to operate our~~ ~~Company-owned distribution center efficiently or our third-party distribution center providers may perform poorly;~~

●

~~Increases in~~ ~~high petroleum products prices could increase our inventory transportation costs and adversely affect our profitability;~~

●

we ~~may be unable to effectively manage our international franchises or laws relating to those franchises may change;~~

●

~~our plans to leverage the Build-A-Bear brand to drive strategic expansion may not be successful;~~

●

~~our market share could be adversely affected by a significant, or increased, number of competitors;~~

	●	we may suffer negative publicity or ~~negative sales~~be sued if the ~~non-proprietary toy~~manufacturers of our merchandise violate labor laws or engage in practices that consumers believe are unethical;
	●	we may suffer negative publicity or a decrease in sales or profitability if the products from other companies that we sell in our stores do not meet our ~~safety,~~ quality standards or fail to achieve our sales expectations;

●

~~poor global economic conditions could have~~we may suffer negative publicity and damage to our reputation if we do not continue to evolve environmental, social, and governance initiatives in a ~~material~~ ~~adverse effect on our liquidity and capital resources;~~

timely manner;

●

fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline; ~~and~~

	●	f~~luctuations~~fluctuations in our operating results could reduce our cash flow, or trigger restrictions under our credit agreement, and we may be unable to repurchase shares at all or at the times or in the amounts we desire, or the results of ~~the~~our share repurchase program may not be as beneficial as we would ~~like.~~like;
	●	our relatively low market capitalization can cause the market price of our common stock to become volatile;
	●	our certificate of incorporation and bylaws and Delaware law contain provisions that may prevent or frustrate attempts to replace or remove our current management by our stockholders, even if such replacement or removal may be in our stockholders’ best interests;
	●	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;
	●	we may be unsuccessful in acquiring businesses or engaging in other strategic transactions, which may negatively affect our financial condition and profitability.

Table of Contents

Overview

Build-A-Bear Workshop, Inc., a Delaware corporation, was formed in 1997 as a mall-based, experiential specialty retailer where children and their families could create their own stuffed animals. Over the last 25 years, Build-A-Bear has become a brand with high consumer awareness and positive affinity with over 225 million furry friends made by guests. We are leveraging this brand strength to strategically evolve our brick-and-mortar retail footprint beyond traditional malls with a versatile range of formats and locations including tourist destinations, expand into international markets primarily via a franchise model, and broaden the ~~only global company~~total addressable market beyond children by adding teens and adults with entertainment/sports licensing, collectible and gifting offerings. Build-A-Bear's pop-culture and multi-generational appeal have also played a key role in our digital transformation which includes a meaningful e-commerce/omni-channel business that ~~offers an interactive “make your own stuffed animal”~~has delivered sustained growth, engaging consumer loyalty program and robust digital marketing and content capabilities with industry-leading partners. As of October 28, 2023, we had 356 corporately-operated stores globally and 3 seasonal locations, 85 partner-operated locations operating through our "third-party retail" model in which we sell our products on a wholesale basis to other companies that then, in turn, execute our retail ~~entertainment~~ experience, and 70 international franchised stores under the Build-A-Bear Workshop ~~brand, in which~~brand. In addition to these stores, we sell products on our ~~guests stuff, fluff, dress, accessorize~~company-owned e-commerce sites and ~~name their own teddy bears~~third-party marketplace sites, our franchisees sell products through sites that they manage as well as other third-party marketplace sites and other ~~stuffed animals. As of~~ September 30, 2017, we operated 292 stores in the United States, Canada and Puerto Rico (collectively, North America), 60 stores in the United Kingdom, Ireland and Denmark (collectively, Europe), and one store in China and had 90 franchised stores operating internationallyparties sell products on their sites under ~~the Build-A-Bear Workshop brand.~~wholesale agreements.

~~On August 21, 2017, we~~ announced that our Board of Directors completed the previously announced review of strategic alternatives. After an extensive analysis and careful consideration of a broad range of strategic alternatives by the Board of Directors in consultation with its financial and legal advisors, the Board of Directors authorized a share repurchase program of up to $20 million through September 30, 2020.

Our Company has been executing a multi-year turnaround plan that was initiated in 2013 to improve both sales and profitability. We are evolving our strategic plan in 2017 to better align with shifts that have been occurring in consumer shopping trends which accelerated in the fourth quarter of 2016 while building on the actions that we have taken over the last few years to return the Company to sustained profitability and prepare for growth. Our focus in 2017 is concentrated in four key areas: channel evolution, product expansion, brand and experience amplification and profitability improvement. 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”) – Company-owned retail stores located in the United States, Canada, Puerto Rico, the United Kingdom, Ireland, Denmark and China, as well as two e-commerce sites;~~

~~Commercial – Transactions with other businesses, mainly comprised of wholesale product sales and licensing our intellectual property, including entertainment properties, for third-party use; and~~

~~International~~ ~~Franchising – Royalties and other fees from other international stores operated under franchise agreements.~~

	•	Direct-to-Consumer (“DTC”) – Corporately-operated retail stores located in the U.S., Canada, the U.K., and Ireland and two e-commerce sites;
	•	Commercial – Transactions with other businesses, mainly comprised of wholesale product sales to third-party retailers and licensing our intellectual property, including entertainment properties, for third-party use; 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 thirty-nine ~~week periods~~weeks ended ~~September 30, 2017~~October 28, 2023 and October ~~1, 2016~~29, 2022 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 e-commerce engagement, targeting a range of consumer segments and purchasing occasions through digitally-driven, diversified omnichannel capabilities. We ~~use comparable sales as one~~operate a vertical retail channel with stores that feature a unique combination of ~~the performance measures for our business.~~ ~~Comparable sales percentage changes are based on net retail sales~~experience and ~~exclude the impact of foreign exchange. Stores are considered comparable beginning~~product in which guests can "make their ~~thirteenth consecutive full month of operation. Not all stores are included~~own stuffed animals" by participating in the ~~calculation. The percentage change~~stuffing, fluffing, dressing, accessorizing, and naming of their teddy bears and other stuffed animals. 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 licensed properties. Over the last 25 years, Build-A-Bear has become a brand with high consumer awareness and positive affinity. We believe there are opportunities to leverage this brand strength, pop-culture status and multi-generational appeal and generate incremental revenue and profits through licensing our intellectual properties through content and entertainment development for kids and adults while also offering products at wholesale and in ~~consolidated comparable sales for the periods presented below is as follows:~~non-plush consumer categories through outbound licensing agreements with leading manufacturers.

Thirteen Weeks Ended

Thirty-nine Weeks Ended

September 30,
2017

October 1,
2016

September 30,
2017

October 1,
2016

Comparable sales change (%)

North America
(7.8)% (1.6)% (6.4)% (2.0)%
Europe & Asia
(5.2)% (4.8)% (2.4)% (5.5)%
Consolidated
(7.4)% (2.2)% (5.8)% (2.6)%

Stores
(6.9)% (3.2)% (5.8)% (3.1)%
E-commerce
(18.2)% 25.2% (4.9)% 11.9%
Consolidated
(7.4)% (2.2)% (5.8)% (2.6)%

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 ~~decrease in consolidated comparable sales for the~~ ~~thirteen weeks ended September 30, 2017 is attributable to the continued overall decline in traditional mall traffic, anticipated fluctuation in base comparable sales linked to the evolution~~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 ~~footprint, the disruption caused by the planned transition to a new web platform,~~performance and ~~unexpected weather impacts. This was partially offset by increases~~leverages our brand equity which may in conversion, units per transaction and dollars per transaction during the quarter. For the thirty-nine weeks ended September 30, 2017, we believe the decrease in consolidated comparable sales is primarily attributable to the continued decline in traditional mall traffic, unexpected events such as weather in North America and multiple terrorist attacks in the United Kingdom in the second quarter, again partially offset by increases in dollars per transaction and units per transaction. turn positively impact other channels of distribution. We remain focused on our strategic priorities which are centered on three key areas:

~~Strategy~~

~~We expect to improve consolidated sales through the following key initiatives:~~

●

•

~~Channel Evolution:~~Drive continued digital transformation and broaden our total addressable market while leveraging enhanced omni-channel capabilities. We expect to ~~continue~~more effectively use our expanded digital capabilities and platforms to ~~evolve our aged store fleet into~~inform and drive marketing and content campaigns and deliver personalized experiences and promotional messaging to both acquire new ~~Discovery format stores, leveraging natural lease events. Overall, these locations continue to perform ahead of heritage locations in both sales~~guests and ~~profitability.~~increase repeat purchases from existing consumers. We also expect to continue to diversify our real estate portfolio to include more non-traditional locations inclusive of our new retail model (Concourse Shop) which requires less capital, has shorter-term leases and offers a solution for a wide range of settings. Separately, we have now essentially completed the planned upgrade of our web platform and redesigned site ahead of the fourth quarter holiday season. The updates to the website platform and e-commerce processes are expected to enable our guests to experience Build-A-Bear online in new ways and allow usplan to leverage the ~~macro trend~~expansion of our total addressable market by reaching beyond the core kid base and continuing to acquire new tween, teen, and adult consumers ~~online.~~

by offering unique affinity offerings, expanding gift-giving and adding new purchase occasions. We prepared for and launched the planned update to our e-commerce site with extended testing and algorithm refinements being made throughout the year on multiple points from the landing page to checkout. In addition, we plan to grow our core kids and family business with new product launches, incremental purchase occasions and engaging digital marketing content.

	●	~~Product Expansion:~~ ~~To meet~~
	•	Expand brand access with additional experience locations and increase brand engagement leveraging strategic partnerships, pop-culture status and digital media, content and entertainment. In fiscal 2023, we expect a net increase in the ~~needs~~number of stores in North America inclusive of third-party retail sites and to have more corporately-operated locations in Europe compared to the end of fiscal 2022. Combined across geographies and business models, we plan to have more total locations at the end of fiscal 2023 compared to the end of fiscal 2022. We have made a concerted effort to shift to non-traditional locations including family-centric tourist and hospitality sites and now have approximately 35% of our ~~core consumer base (boys~~total retail locations in non-traditional settings. While tourist sites have been and ~~girls ages 3~~will remain a critical part of our overarching location expansion strategy, recent research data supports our opportunity to ~~12) while systematically building secondary consumer segments (including affinity, gift-giver~~reengage in profitable expansion of our corporately-operated experience locations on a more localized level, particularly given the numerous and ~~teen-plus),~~flexible models we have developed in the past few years. We also continue to develop innovative experiences to expand our brand reach. This includes Build-A-Bear vending machines, also known as ATMs or automatic teddy machines. In addition, we plan to continue to ~~balance our offering of core products with a comprehensive program of key licensed properties including products with tie-ins~~utilize digital media, content and entertainment as marketing and brand-building tools to ~~major movie releases throughout 2017 while continuing to develop~~engage consumers, create incremental value and ~~expand offerings of our successful owned intellectual property stories, such as Promise Pets, Honey Girls~~drive in-person and ~~the holiday-specific Merry Mission collections.~~ online traffic and demand.

	●
	•	~~Brand~~Optimize our solid financial position including a strong balance sheet to support our business, make investments that drive sustained profitable growth and ~~Experience Amplification:~~ ~~In addition~~continue to ~~creating sharable, emotional content that more authentically communicates the heart of the brand, we are making adjustments~~deliver value to marketing programs to create synergy across channels. These include shifts in media to better reach moms and kids while leveraging the competitive advantage of our entertainment retail experience by adding in-store events such as story readings, movie release celebrations and appearances by our iconic mascots.shareholders. We plan to maintain disciplined expense management particularly in light of changes in overall consumer shopping trends, recent inflationary pressures, wage increases and supply chain challenges. We are also focused on ongoing lease negotiations as we continue to ~~develop entertainment content, including mobile apps, music videos~~evolve our real estate portfolio with new locations, formats and ~~other opportunities that increase engagement~~business models. In addition, we expect to continue to strategically manage our capital to support key initiatives and ~~are~~innovative developments designed to ~~improve efficiency, drive traffic~~deliver long-term profitable growth while returning value to shareholders through actions such as the dividends announced by our Board of Directors and ~~lead to profitable sales growth.~~

●

~~Long-Term Profitability Improvement:~~ ~~We are focused on improving profitability through the execution of our stated strategies detailed above~~paid in fiscal 2021 and 2023 totaling $41.5 million as well as ~~disciplined expense management~~share repurchase programs authorized by the Board of Directors in fiscal 2021 and ~~on-going efforts in process and systems upgrades. While~~2022 where we ~~continue~~have utilized $43.7 million under both programs to ~~monitor consolidated comparable sales as an important metric in our business, we believe that total revenue growth and profitability improvement are more indicative~~repurchase nearly 2.5 million shares through the end of the ~~progress in our business initiatives on a go forward basis.~~fiscal third quarter fiscal 2023.

During the last two weeks of our fiscal third quarter, revenues were negatively impacted simultaneous with the widely reported consumer spending softness. The effects of this decline in consumer spending persisted into November 2023, the beginning of our fiscal fourth quarter, continuing to negatively impact our revenues.

Table of Contents

Retail ~~Stores~~Stores:

Corporately-Operated Locations::

The table below sets forth the number of Build-A-Bear Workshop ~~company-owned~~corporately-operated stores in North America, and Europe ~~and Asia~~ for the periods presented:

	Thirty-nine Weeks Ended																						Thirty-nine weeks ended
	September 30, 2017											October 1, 2016											October 28, 2023								October 29, 2022
	North America			Europe			Asia		Total			North America			Europe			Asia		Total			North America		Europe			Total			North America			Europe			Total
Beginning of period		285			60			1		346			269			60			-		329			312		38			350			305			41			346
Opened		28			4			-		32			15			2			1		18			6		1			7			8			-			8
Closed		(21	)		(4	)		-		(25	)		(13	)		(4	)		-		(17	)		-		(1	)		(1	)		(1	)		(6	)		(7	)
End of period		292			60			1		353			271			58			1		330			318		38			356			312			35			347

~~During 2017, we expect to continue to make improvements to~~As of October 28, 2023, 47% of our corporately-operated stores were in an ~~aged store fleet by leveraging the new~~updated Discovery ~~format in conjunction with select natural lease events.~~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. ~~Current plans~~The future of our retail store fleet may include expansion into more non-traditional locations, ~~made possible~~ including concourse format shops and by expansion in ~~part by Concourse Shops. Concourse Shops are stand-alone~~other locations outside of traditional malls.

Third-Party Retail Locations:

The number of third-party retail ~~units that occupy approximately 200 square feet designed to be operated~~locations opened and closed for the periods presented below is summarized as follows:

Thirty-nine weeks ended

October 28, 2023

October 29, 2022

Beginning of period
70 61
Opened
15 6
Closed
- (2 )
End of period
85 65
Through our partner-operated third-party retail model, there were 85 stores in open, concourse areas of malls or other covered pedestrian areas. We currently expect to remodel approximately 20 locations into our Discovery format in 2017 and to have 20 to 25 new stores, inclusive of Concourse Shops, open byoperation at the end of the ~~fiscal year. We ended the 2017~~ third quarter of fiscal 2023 with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry's, Beaches Family Resorts, and Kalahari. This 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 on a ~~total of 100 Discovery format stores, including 23 Concourse Shops.~~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:~~Revenue~~:

Our first franchisee location was opened in November 2003. All franchised stores have similar signage, store layout, merchandise characteristics and guest experience as our ~~company-owned~~corporately-operated stores. As of ~~September 30, 2017,~~October 28, 2023, we had ~~eight~~5 master franchise agreements, which typically grant franchise rights for a particular country or group of countries, covering an aggregate of 148 countries.

The number of franchised stores opened and closed for the periods presented below are summarized as follows:

Thirty-nine Weeks Ended

Thirty-nine weeks ended

September 30,
2017

October 1,
2016
October 28, 2023 October 29, 2022
Beginning of period
92 77 68 72
Opened
11 10 8 9
Closed
(13 ) (7 ) (6 ) (15 )
End of period
90 80 70 66

In the ordinary course of business, we anticipate signing additional master franchise agreements in the future and terminating other such agreements. ~~For example, we signed a new franchising agreement granting territory rights in~~We source fixtures and other supplies for our franchisees from China ~~Hong Kong~~which significantly reduces the capital and ~~Macau with plans~~lowers the expenses required to open ~~the first store in Beijing this December.~~franchises. We believe there is a market potential for approximately 300 international stores outside of the United States, Canada, the United Kingdom, Ireland and Denmark. We continue to expect franchisees to leverage theare leveraging new formats that have been developed for our ~~company-owned operations~~corporately-operated locations such as concourses and sourcing changes that have significantly reduced the capital and expenses required to open stores. We expect to continue to develop market expansion through both new and existing franchisees in 2017 and beyond.shop-in-shops with our franchisees.

18

Table of Contents

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, ~~and~~ commercial revenue, ~~and~~international franchising, respectively, as well as immaterial rounding:

BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

Thirteen weeks ended

Thirty-nine weeks ended

Thirteen weeks ended

Thirty-nine weeks ended

September 30,

October 1,

September 30,

October 1,

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016

2023

2022

2023

2022

Revenues:

Net retail sales
97.7 % 97.8 % 97.3 % 98.4 % 93.4 % 95.0 % 93.8 % 95.4 %
Commercial revenue
1.6 1.6 2.0 1.0 5.6 3.9 5.3 3.9
Franchise fees
0.7 0.6 0.7 0.6
International franchising
1.0 1.1 0.9 0.7
Total revenues
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Costs and expenses:

Cost of merchandise sold - retail (1)
55.8 56.7 54.9 55.1 47.4 47.7 46.3 48.5
Cost of merchandise sold - commercial (1)
45.2 40.5 53.8 46.6 44.4 46.8 47.8 46.7
Cost of merchandise sold - international franchising⁽¹⁾
62.2 77.0 64.2 67.4
Total cost of merchandise sold
47.3 48.0 46.5 48.6
Consolidated gross profit
52.7 51.9 53.5 51.4
Selling, general and administrative
41.6 39.9 43.1 43.4 43.3 42.5 41.7 40.4
Store preopening
0.6 0.7 0.8 1.2
Interest expense (income), net
(0.0 ) (0.0 ) (0.0 ) (0.0 )
Total costs and expenses
97.4 96.7 98.3 99.3

Interest (income) expense, net
(0.3 ) 0.0 (0.2 ) 0.0
Income before income taxes
2.6 3.3 1.7 0.7 9.6 9.5 11.9 11.1
Income tax expense
0.9 1.1 0.6 0.3 2.6 2.3 2.9 2.6
Net income
1.7 2.2 1.1 0.4 7.1 7.1 9.1 8.5

Retail Gross Margin % (2)
44.2 % 43.3 % 45.1 % 44.9 %
Retail Gross Margin ⁽²⁾
52.6 % 52.3 % 53.7 % 51.5 %

(1)
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.
(2)
Retail gross margin ~~percentage~~ represents net retail sales less cost of merchandise sold –- retail; retail ~~and is expressed as a~~gross margin percentage ofrepresents retail gross margin divided by net retail sales.
Thirteen weeks ended ~~September 30, 2017~~October 28, 2023 compared to thirteen weeks ended October ~~1, 2016~~29, 2022

Total revenues. Consolidated revenues. increased 2.9%, primarily fueled by growth in commercial segment revenues as well as increased retail revenue from increased retail transactions in North American brick-and-mortar stores driven by an increase in transaction volume and growth in international franchising revenue.
Net retail sales for the thirteen weeks ended ~~September 30, 2017~~October 28, 2023 were ~~$80.6~~ $100.4 million, compared to $99.2 million for the thirteen weeks ended October 29, 2022, an increase of $1.2 million, or 1.2%, compared to ~~$81.9~~the prior year period. The components of this increase are as follows (dollars in thousands):

Thirteen weeks ended

October 28, 2023

Impact from:

Existing stores
$ (1,243 )
Digital sales
879
New stores
1,776
Store closures
(965 )
Gift card breakage
(124 )
Foreign currency translation
920
Other
(61 )
Total Change
$ 1,182
The retail revenue increase was primarily the result of an increase in sales from corporately-operated retail locations through growth in the number of transactions through the majority of the quarter, including from the opening of a net five corporately-managed locations in the quarter, an increase in digital demand, and the strengthening of the British Pound compared to the same period in the prior year. Our retail revenue during the quarter was negatively impacted by a decline in our dollars per transaction during the period and consumer spending softness during the last two weeks of the period.
Commercial revenue was $6.0 million for the thirteen weeks ended October ~~1, 2016, a decrease of $1.3 million, or 1.6%. The components of this decrease are as follows:~~

Thirteen weeks ended

September 30,

2017

(dollars in millions)

Increase from new stores
$ 6.1
Impact of store closures
(1.7 )
Impact of foreign currency translation
0.2
Decrease in consolidated comparable sales
(5.6 )
Decrease in non-comparable stores, primarily remodels and relocations
(0.4 )
Increase from other retail
0.1
Change in deferred revenue estimates, including gift card breakage
-
$ (1.3 )

~~We believe the decrease in consolidated comparable sales~~ for the thirteen weeks ended September 30, 2017 is attributable to the continued overall decline in traditional mall traffic, anticipated fluctuation in base comparable sales linked to the evolution of our retail footprint, the disruption caused by the planned transition to a new web platform, and unexpected weather impacts. This was partially offset by increases in conversion, units per transaction and dollars per transaction during the quarter.
~~Commercial~~ revenue was $1.3 million for both the thirteen weeks ended September 30, 2017 and October 1, 2016. Revenue from franchise fees was $0.6 million for both the thirteen weeks ended September 30, 2017 and October 1, 2016.
~~Retail g~~~~ross margin.~~ ~~Retail gross margin was $35.6 million for the thirteen weeks ended September 30, 2017~~28, 2023 compared to ~~$35.4~~$4.1 million for the thirteen weeks ended October ~~1, 2016, an~~29, 2022. The $1.9 million increase is primarily the result of ~~$0.2~~increased sales volume from our commercial accounts through our partner-operated third-party retail model.
International franchising revenue was $1.1 million ~~or 0.6%. As a percentage of net retail sales, retail gross margin was 44.2% for the thirteen weeks ended September 30, 2017 compared to 43.3%~~ for the thirteen weeks ended October ~~1, 2016. This 90 basis-point~~28, 2023 compared to $1.1 million for the thirteen weeks ended October 29, 2022. The lack of change is the result of decreased transactions offset by increased location count.
Retail gross margin. Retail gross margin ~~increase was~~dollars increased $1.0 million to $52.9 million from $51.9 million for the thirteen weeks ended October 29, 2022. The retail gross margin rate increased 30 basis points compared to the prior year primarily driven by ~~a 220 basis-point improvement in merchandise margin, and largely offset by deleverage~~lower freight costs compared to the fiscal 2022 third quarter.
19
Table of ~~fixed occupancy costs. Merchandise margin benefited from lower discounts, selective price increases and sourcing efficiencies.~~
Contents

Selling, general and administrative. ~~Selling, general and administrative~~SG&A expenses were ~~$34.3~~$46.6 million, ~~for the thirteen weeks ended September 30, 2017, as compared to $33.4 million~~or 43.3% of consolidated revenue, for the thirteen weeks ended October ~~1, 2016, an increase of $0.9~~28, 2023, compared to $44.4 million, or ~~2.7%. As a percentage~~42.5% of ~~total revenues, selling, general and administrative expenses increased to 41.6% for the thirteen weeks ended September 30, 2017, as compared to 39.9%~~consolidated revenue, for the thirteen weeks ended October ~~1, 2016, an increase of 170 basis-points.~~29, 2022. The increase in ~~selling, general and administrative~~overall expense was ~~primarily~~driven by higher store-level wages due to ~~higher performance-based compensation expense~~inflation, the planned addition of talent, marketing, and ~~additional expenses related~~other investments to ~~the higher store count.~~support future growth.

~~Store preopening~~Interest (income) expense, net. . ~~Store preopening expenses were $0.5 million for the thirteen weeks ended September 30, 2017, as compared to $0.6 million~~Interest income was $281,000 for the thirteen weeks ended October ~~1, 2016, a decrease~~28, 2023 compared to interest expense of ~~$0.1 million.~~
~~Interest expense (income), net.~~ ~~Interest expense (income) was less than $0.1 million~~$6,000 for ~~both~~ the thirteen weeks ended ~~September 30, 2017 and~~ October ~~1, 2016, respectively.~~29, 2022. The increase in interest income compared to expense in the prior year is the result of the Company's cash management strategy to invest cash on-hand in short-term, highly liquid investments.

Provision for income taxes. Income tax expense was ~~$0.7~~$2.8 million with a tax rate of ~~33.4%~~26.7% for the thirteen weeks ended ~~September 30, 2017,~~October 28, 2023 as compared to ~~income tax expense of $1.0~~$2.4 million with a tax rate of ~~34.2%~~24.6% for the thirteen weeks ended October ~~1, 2016.~~
~~Thirty-nine~~ ~~weeks ended~~ ~~September 30~~~~, 201~~7~~compared to~~ ~~thirty-nine~~ ~~weeks ended~~ ~~October 1, 2016~~
~~Total revenues~~. ~~Net retail sales were $243.6 million for~~29, 2022. In the ~~thirty-nine weeks ended September 30, 2017, compared to $249.9 million for~~third quarter of 2023 and 2022, the ~~thirty-nine weeks ended October 1, 2016, a decrease of $6.3 million, or 2.5%. The components of this decrease are as follows:~~

Thirty-nine weeks ended

September 30,

2017

(dollars in millions)

Increase from new stores
$ 15.7
Impact of store closures
(5.5 )
Impact of foreign currency translation
(3.2 )
Decrease in consolidated comparable sales
(13.2 )
Decrease in non-comparable stores, primarily remodels and relocations
(1.2 )
Increase from other retail
0.4
Change in deferred revenue estimates, including gift card breakage
0.7
$ (6.3 )
~~For the~~ thirty-nine weeks ended September 30, 2017, we believe the decrease in consolidated comparable sales is primarily attributable to the continued decline in shopper traffic particularly in traditional malls, unexpected events such as weather in North America and multiple terrorist attacks in the United Kingdom in the second quarter, again partially offset by increases in dollars per transaction and units per transaction.
~~Commercial revenue was $~~5.0 million for the thirty-nine weeks ended September 30, 2017, compared to $2.6 million for the thirty-nine weeks ended October 1, 2016, an increase of $2.4 million. This increase was primarily attributable to an increase in wholesale activities as a part of our initiatives to expand locations through an “experiential wholesale” model including the relationship with Carnival Cruise Lines and ongoing outbound licensing agreements that leverage the strength of the Build-A-Bear brand. Revenue from franchise fees was $1.7 million for the thirty-nine weeks ended September 30, 2017, compared to $1.4 million for the thirty-nine weeks ended October 1, 2016, an increase of $0.3 million.

~~Retail g~~~~ross margin.~~ Retail gross margin was $109.9 million for the thirty-nine weeks ended September 30, 2017, compared to $112.1 million for the thirty-nine weeks ended October 1, 2016, a decrease of $2.2 million due to the decrease in total net retail sales. As a percentage of net retail sales, retail gross margin increased to 45.1% for the thirty-nine weeks ended September 30, 2017 from 44.9% for the thirty-nine weeks ended October 1, 2016. This 20 basis-point increase was primarily driven by the expansion of merchandise margin offset by the deleverage of fixed occupancy costs.
~~Selling, general and administrative.~~ Selling, general and administrative expenses were $107.8 million for the thirty-nine weeks ended September 30, 2017, compared to $110.1 million for the thirty-nine weeks ended October 1, 2016, a decrease of $2.3 million, or 2.1%. As a percentage of total revenues, selling, general and administrative expenses were 43.1% for the thirty-nine weeks ended September 30, 2017, as compared to 43.4% for the thirty-nine weeks ended October 1, 2016, a decrease of 30 basis-points. The decrease was primarily due to lower marketing costs, a portion of which will shift into the fourth quarter, as well as a benefit of foreign currency, offset by an increase in lower incentive compensation expense in the first three quarters of fiscal 2017.
~~Store preopening~~. Store preopening expenses were $2.0 million for the thirty-nine weeks ended September 30, 2017 as compared to $3.0 million for the thirty-nine weeks ended October 1, 2016, a decrease of $1.0 million. Store preopening expenses for the thirty-nine weeks ended September 30, 2017 were predominantly associated with openings of new and remodeled Discovery format stores through September 30, 2017 along with a portion of planned fourth quarter openings. For the thirty-nine weeks ended October 1, 2016, preopening expenses included costs related to the opening of our flagship China location.
~~Interest expense (income), net.~~ ~~Interest income, net of interest expense, was less than $0.1 million for the thirty-nine weeks ended September 30, 2017 and October 1, 2016, respectively.~~
~~Provision for income taxes~~. Income tax expense was $1.5 million with a tax rate of 35.5% for the thirty-nine weeks ended September 30, 2017, as compared to income tax expense of $0.8 million with a tax rate of 42.0% for the thirty-nine weeks ended October 1, 2016. The 2017 effective tax rate differed from the statutory rate of ~~34%~~21% primarily due to ~~the implementation of the new accounting standard related to the accounting for~~state income tax expense partially offset by the tax impact of equity awards ~~vesting~~vesting. In addition, the Company remains in a full valuation allowance in certain foreign jurisdictions.
Thirty-nine weeks ended October 28, 2023 compared to thirty-nine weeks ended October 29, 2022
Total revenues. Consolidated revenues increased 4.3%, primarily driven by a 5.3% increase in North America and partially offset by a 2.5% decrease in Europe. The overall revenue growth was primarily fueled by increased retail transactions in North American brick-and-mortar stores driven by an increase in consumer traffic, as well as growth in the commercial and international franchising segments' revenue.
Net retail sales for the thirty-nine weeks ended October 28, 2023 were $316.0 million, compared to $308.0 million for the thirty-nine weeks ended October 29, 2022, an increase of $8.0 million, or 2.6%, compared to the prior year period. The components of this increase are as follows (dollars in thousands):

Thirty-nine weeks ended

October 28, 2023

Impact from:

Existing stores
$ 6,294
Digital sales
202
New stores
5,511
Store closures
(3,672 )
Gift card breakage
(276 )
Foreign currency translation
(75 )
Other
(13 )
Total Change
$ 7,971
The retail revenue increase was primarily the result of an increase in sales from corporately-operated retail locations through growth in the number of transactions, as our traffic outpaced national retail traffic data, and the opening of a net six new corporately-managed locations in the fiscal year.
Commercial revenue was $17.7 million for the thirty-nine weeks ended October 28, 2023 compared to $12.5 million for the thirty-nine weeks ended October 29, 2022. The $5.2 million increase is primarily the result of increased sales volume from our commercial accounts through our partner-operated third-party retail model.
International franchising revenue was $3.2 million for the thirty-nine weeks ended October 28, 2023 compared to $2.4 million for the thirty-nine weeks ended October 29, 2022. The $0.8 million increase is primarily due to an overall increase in sales from franchisees.
Retail gross margin. Retail gross margin dollars increased $11.1 million to $169.8 million from $158.7 million for the thirty-nine weeks ended October 29, 2022. The retail gross margin rate increased 220 basis points compared to the prior year primarily driven by lower freight costs, as expected, and leverage of warehouse costs compared to the same period in 2022.
Selling, general and administrative. SG&A expenses were $140.5 million, or 41.7% of consolidated revenue, for the thirty-nine weeks ended October 28, 2023, compared to $130.3 million, or 40.4% of consolidated revenue, for the thirty-nine weeks ended October 29, 2022. The increase in overall expense was driven by higher wages due to inflation, the planned addition of talent, marketing, and other ~~discrete items.~~investments to support future growth.
Interest (income) expense, net. Interest income was $524,000 for the thirty-nine weeks ended October 28, 2023 compared to interest expense of $27,000 for the thirty-nine weeks ended October 29, 2022. The ~~fluctuation~~increase in interest income compared to expense in the ~~2016~~prior year is the result of the Company's cash management strategy to invest cash on-hand in short-term, highly liquid investments.
Provision for income taxes. Income tax expense was $9.6 million with an effective tax rate ~~was~~of 24.0% for the thirty-nine weeks ended October 28, 2023 as compared to $8.2 million with an effective tax rate of 23.1% for the thirty-nine weeks ended October 29, 2022. In the third quarter of fiscal 2023 and 2022, the effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the ~~effect~~tax impact of ~~permanent differences and~~equity awards vesting. In addition, the Company remains in a ~~discrete item.~~full valuation allowance in certain foreign jurisdictions.

20
Table of Contents
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):

Thirteen weeks ended

Thirty-nine weeks ended

October 28, 2023

October 29, 2022

October 28, 2023

October 29, 2022

Income before income taxes (pre-tax)
$ 10,348 $ 9,888 $ 40,180 $ 35,722
Interest (income) expense, net
(281 ) 6 (524 ) 27
Depreciation and amortization expense
3,231 3,017 9,540 9,295
Earnings before interest, taxes, depreciation, and amortization
$ 13,298 $ 12,911 $ 49,196 $ 45,044
EBITDA for the thirteen weeks ended October 28, 2023 increased $0.4 million to $13.3 million from $12.9 million for the thirteen weeks ended October 29, 2022. The slight increase in EBITDA is driven by a decrease in freight costs offset by higher store-level wages due to inflation, the planned addition of talent, marketing, and other investments to support future growth.
EBITDA for the thirty-nine weeks ended October 28, 2023 increased $4.2 million from $45.0 million from the thirty-nine weeks ended October 29, 2022 The increase in EBITDA is primarily driven by a decrease in freight costs coupled with an increase in consolidated revenues, allowing for leverage of merchandise and distribution costs compared to the prior period, partially offset by higher wages due to inflation, the planned addition of talent, marketing, and other investments to support future growth.
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 (including as a result of the pandemic) and consumer spending patterns; (2) changes in store operations in response to the pandemic apart from its effect on the general economy, including temporary store closures required by local governments; (3) increases or decreases in our ~~comparable~~existing store and e-commerce sales; ~~(3)~~(4) fluctuations in the profitability of our stores; ~~(4) changes in foreign currency exchange rates;~~ (5) 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; (6) changes in foreign currency exchange rates; (7) the timing of ~~our~~new store openings, closings, relocations and ~~closings~~remodeling and related expenses; ~~(7)~~(8) changes in consumer preferences; ~~(8)~~(9) the effectiveness of our inventory management; ~~(9)~~(10) the actions of our competitors or mall anchors and co-tenants; ~~(10)~~(11) seasonal shopping patterns and holiday and vacation schedules; (12) disruptions in store operations due to civil unrest; and ~~(11)~~(13) weather conditions.

The timing of store closures, relocations, remodels, openings and ~~openings~~re-openings may result in fluctuations in quarterly results based on the revenues and expenses ~~associated~~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.

~~As a retailer~~Because our retail operations include toy products which have sales that ~~has toy products~~historically peak in relation to the holiday season as part of our revenue model, our sales ~~are~~have historically been highest in our fourth ~~quarter, followed by the first~~ quarter. The timing of holidays and school vacations can impact our quarterly results. We cannot ~~ensure~~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. For example, the ~~2014~~2023 fiscal fourth quarter ~~had~~will have 14 weeks.

Liquidity and Capital Resources

~~Our~~As of October 28, 2023, we had a consolidated cash balance of $24.8 million, 80% of which was domiciled within the U.S. Historically, our cash requirements ~~are~~have been primarily for the relocation and remodeling of existing stores in our new design, opening of new stores, investments in information ~~systems~~technology infrastructure and ~~workin~~gworking capital. Over the past several years, we have met these requirements through capital generated from cash flow provided by operations. WeAdditionally, during 2023 we have ~~access~~used cash on-hand to ~~additional cash through our revolving line~~invest in short-term, highly liquid investments with original maturities of ~~credit that has been~~three months or less resulting in ~~place since 2000.~~interest income of $0.5 million during the fiscal year.

A summary of our operating, investing and financing activities is shown in the following table (dollars in thousands):

Thirty-nine weeks ended

October 28,

October 29,

2023

2022

Net cash provided by operating activities
$ 32,740 $ 11,247
Net cash used in investing activities
(11,124 ) (6,752 )
Net cash used in financing activities
(39,134 ) (26,135 )
Effect of exchange rates on cash
120 818
Decrease in cash, cash equivalents, and restricted cash
$ (17,398 ) $ (20,822 )

Operating Activities.Cash ~~used in~~provided by operating activities ~~was $7.0 million for the thirty-nine weeks ended September 30, 2017, compared to $14.3~~increased $21.5 million for the thirty-nine weeks ended October ~~1, 2016, a decrease of $7.3 million. Generally, changes~~28, 2023, as compared to the thirty-nine weeks ended October 29, 2022. This increase in cash from operating activities ~~are~~was primarily driven by ~~changes in net income and changes in operating assets and liabilities. This~~a decrease in cash ~~from operating activities over~~spent on inventory purchases, as in the prior year, ~~ago period was primarily due to~~we proactively and strategically accelerated the timing of ~~inventory and capital expenditure payments.~~our order placement to mitigate the inflationary pressures experienced in the first half of fiscal 2022, coupled with increased sales volume, resulting in higher net income.

Investing Activities.Cash used in investing activities ~~was $12.5 million for the thirty-nine weeks ended September 30, 2017, as compared to $16.8~~increased $4.4 million for the thirty-nine weeks ended October ~~1, 2016, a decrease of $4.3 million. Cash used in investing activities during the thirty-nine weeks ended September 30, 2017 primarily related~~28, 2023 as compared to ~~store construction and upgrades and purchases of information technology infrastructure. Cash used in investing activities during~~ the thirty-nine weeks ended October ~~1, 2016~~29, 2022. This increase in cash used in investing activities was primarily driven by an increase in spending on capital expenditures related to ~~store construction and upgrades and purchases of~~ information technology ~~infrastructure, partially offset by the maturity of short-term investments.~~projects and new store openings.

Financing Activities. ~~Financing~~ Cash used in financing activities ~~used cash of $1.5~~increased $13.0 million ~~in the thirty-nine weeks ended September 30, 2017, as purchases of our common stock used cash of $1.0 million and exercises of employee stock options, net of shares used~~ for ~~withholding tax payments used $0.5 million. In~~ the thirty-nine weeks ended October ~~1, 2016,~~28, 2023, as compared to the thirty-nine weeks ended October 29, 2022. This increase in cash used in financing activities ~~used~~was driven primarily by the payment of the special cash dividend of ~~$2.0~~$22.1 million ~~as purchases~~and was partially offset by a decrease in repurchases of our common stock ~~used cash of $1.5 million and exercises of employee stock options, net of shares used for withholding tax payments used $0.5 million. No borrowings were made under our line of credit in either~~ during the thirty-nine weeks ended ~~September 30, 2017 or~~ October ~~1, 2016.~~28, 2023.
21
Table of Contents

Capital ~~Resources.~~ 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 ~~September 30, 2017, we had~~October 28, 2023, borrowings under the agreement would bear interest at (a) a ~~consolidated cash balance~~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 ~~$10.9 million, approximately~~October 28, 2023, our borrowing base was $25.0 million. As a ~~third~~result of ~~which was domiciled outside of the United States. We also have~~ a ~~line~~$250,000 letter of credit which we can use to finance capital expenditures and working capital needs throughout the year. On May 4, 2017, we amended the credit agreement extending the expiration date to December 31, 2018 and increasing the amount of permitted lease and rental payments for personal property from $100,000 to $1.0 million. The bank line provides availability of $35.0 million. Borrowings under the credit agreement are secured by our assets and a pledge of 65% of our ownership interest in certain of our foreign subsidiaries. The credit agreement contains various restrictions on indebtedness, liens, guarantees, redemptions, mergers, acquisitions or sale of assets, loans, transactions with affiliates and investments. It also prohibits us from declaring dividends without the bank’s prior consent, unless such payment of dividends would not violate any terms of the credit agreement. We are also prohibited from repurchasing shares of our common stock unless such repurchase of shares would not violate any terms of the credit agreement; we may not use the proceeds ofoutstanding against the line of credit, to repurchase shares. Borrowings bear interest at LIBOR plus 1.8%. Financial covenants include maintaining a minimum tangible net worth, maintaining a minimum fixed charge coverage ratio (as defined in the credit agreement) and not exceeding a maximum funded debt to earnings before interest, depreciation and amortization ratio. As of September 30, 2017: (i) we were in compliance with all covenants; (ii) there were no borrowings under our line of credit; and (iii) thereapproximately $24.7 million was ~~approximately $35.0 million~~ available for borrowing as of October 28, 2023. We had no outstanding borrowings as of October 28, 2023.
Most of our corporately-operated retail stores are located within shopping malls and all are operated under ~~the line~~leases classified as operating leases. Our leases in North America have shifted to shorter term leases to provide flexibility in aligning stores with market trends. Our leases typically require us to pay personal property taxes, our pro rata share of ~~credit. On October 31, 2017, we drew $4.0 million on our line of credit. This balance is expected to fluctuate throughout the remainder~~real property taxes of the ~~fourth quarter~~shopping mall, our own utilities, repairs and ~~is expected~~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 ~~before~~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 Ireland typically have terms of ten years and generally contain a provision whereby every fifth year the rental rate can be adjusted to reflect the current market rates. The leases typically provide the lessee with the first right for renewal at the end of the ~~year.~~lease. We may also be required to make deposits and rent guarantees to secure new leases as we expand. Business rates also change according to government time schedules to reflect current market rental rates for the locations we lease. Rents are invoiced monthly or quarterly and paid in advance.

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~~In fiscal 2017~~,
Capital spending through the thirty-nine weeks ended October 28, 2023 totaled $11.1 million for information technology projects and new store openings, and we expect to spend ~~a total of $20~~approximately $16 to ~~$23~~$18 million on capital ~~expenditures. Capital spending through the thirty-nine weeks ended September 30, 2017 totaled $12.8 million, on track with our full year plans. Capital spending~~expenditures in fiscal ~~2017 is expected to primarily support~~2023.
Total inventory at quarter end was $64.5 million, a decrease of $23.9 million or 37% from the end of the fiscal 2022 third quarter. We are comfortable with the level and composition of our ~~store activity, including both remodels and new stores and investments in information technology infrastructure.~~inventory.

We have various contractual or other obligations, including operating lease commitments and obligations under deferred compensation plans. As of October 28, 2023, we had purchase obligations totaling approximately $79.4 million, of which $26.0 million are due in the next 12 months. We believe ~~that~~our operating cash ~~generated from operations and borrowings under our credit agreement will be~~flows are sufficient to ~~fund~~meet our ~~working capital and other~~material cash ~~flow requirements~~requirements for at least the ~~near future. Our credit agreement expires on December 31, 2018.~~next 12 months.

~~In August 2017,~~ ~~our Board of Directors authorized a share~~We utilized $4.0 million in cash to repurchase 146,028 shares during the thirteen weeks ended October 28, 2023 and fiscal year-to-date through December 6, 2023, the Company has utilized $17.3 million to repurchase 760,205 shares. As of December 6, 2023, we have $29.2 millionavailable under the current $50.0 million stock repurchase program of up to $20 million. This program authorized us to purchase up to $20 million of our common stock in the open market (including through 10b5-1 trading plans), or through privately negotiated transactions. The primary source of funding for the program is expected to be cashadopted on hand. The timing and amount of share repurchases, if any, will depend on price, market conditions, applicable regulatory requirements, and other factors. The program authorizes us to repurchase shares through September 30, 2020, and does not require us to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice. Shares repurchased under the program will be subsequently retired. Under this program through September 30, 2017, we repurchased 112,325 shares at an average price of $8.88 per share for an aggregate amount of $1.0 million.August 31, 2022.

Off-Balance Sheet Arrangements

~~None~~None.

Inflation

Global inflation is well above recent levels and global interest rates have risen in an effort to curb inflation. The impact of inflation on the Company's business operations was seen throughout fiscal 2022 and continued to adversely affect our business in fiscal 2023, mainly 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 ~~do not believe that~~expect the inflationary pressures experienced thus far in fiscal 2023 to continue throughout the rest of fiscal 2023, specifically through wage increases. We continue to monitor the impact of inflation ~~has had a material adverse impact~~ 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 2023 or ~~operating results during~~in future years. Future volatility of general price inflation and the ~~periods presented.~~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 ~~assurance, however,~~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, ~~will not~~results of operations, financial condition and cash flows may be ~~affected by~~adversely affected. In addition, ongoing inflation in ~~the future.~~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 n~~otes.~~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 re~~quired~~required therein, are reasonable. These accounting policies and estimates, including those related to ~~inventory,~~ 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 January 28, 2023 as filed with the ~~Securities and Exchange Commission (SEC)~~SEC on ~~March 16, 2017,~~April 13, 2023, which includes audited consolidated financial statements for our ~~2016, 2015~~2022 and ~~2014~~2021 fiscal years. There have been no material changes to the critical accounting estimates disclosed in the ~~2016~~2022 Form 10-K.

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Recent Accounting Pronouncements

See Note 11 ~~– Recently Issued~~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 January 28, 2023 as filed with the SEC on April 13, 2023.

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 ~~December 31, 2016~~January 28, 2023 as filed with the SEC on ~~March 16, 2017.~~April 13, 2023.

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 such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),~~ 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 ~~September 30, 2017,~~October 28, 2023, 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 ~~the~~ 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 ~~(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))~~ 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. ~~Based~~During the third quarter fiscal 2023, the Company finished its implementation of new software and control processes to manage inventory at its corporately-operated retail stores within its enterprise resource planning (ERP) system. The transition of this inventory management from the legacy system to the ERP system occurred in phases and was completed by the end of the third quarter fiscal 2023. This implementation has had and is expected to continue to have minimal effects on ~~that evaluation, there has been~~the Company's controls and processes over accounting for corporately-operated retail store inventory. Except for the changes to our inventory management process, no ~~such change~~other changes in our internal control over financial reporting occurred during the ~~period~~quarter covered by this ~~report.~~report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents
PART II – OTHER INFORMATION

~~PART II~~ ~~– OTHER INFORMATION~~Item 1A. Risk Factors

~~Item~~ ~~1A. Risk Factors~~
~~Except as set forth below,~~ ~~there~~There have been no material changes to our ~~Risk Factors~~risk factors as disclosed in our Annual Report on Form 10-K for the year ended ~~December 31, 2016~~January 28, 2023 as filed with the ~~Securities and Exchange Commission~~SEC on ~~March 16, 2017.~~
On August 21, 2017, we announced that our Board of Directors completed the previously announced review of strategic alternatives. After an extensive analysis and careful consideration of a broad range of strategic alternatives by the Board of Directors in consultation with its financial and legal advisors, the Board of Directors authorized a share repurchase program of up to $20 million. Accordingly, the following Risk Factor disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016 is deleted:April 13, 2023.

~~The outcome of the strategic alternatives evaluation process announced on May 3, 2016 is uncertain and the process may or may not result in any changes to the Company’s business plan or lead to a specific action or transaction.~~
~~In addition, the following Risk Factor is added:~~
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 amounts we desire or the results of the share repurchase program may not be as beneficial as we would like.
In August 2017, our Board of Directors authorized a $20 million share repurchase program. The program does not require the Company to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice. Shares repurchased under the program will be subsequently retired. If our cash flow decreases as a result of decreased sales, increased expenses or capital expenditures or other uses of cash, we may not be able to repurchase shares of our common stock at all or at times or in the amounts we desire. As a result, the results of the share repurchase program may not be as beneficial as we would like.
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)

(c)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾

(d)
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs ⁽²⁾

Jul. 1, 2017 – Jul. 29, 2017
278 $ 10.25 - $ -
Aug. 1, 2017 – Aug. 26, 2017
800 $ 9.10 - $ 20,000,000
Aug. 27, 2017 – Sep. 30, 2017
112,475 $ 8.88 112,325 $ 19,002,247
Total
113,553 $ 8.89 112,325
Period

(a) Total Number of Shares (or Units) Purchased (1)

(b) Average Price Paid Per Share (or Unit)

(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

July 30, 2023 - August 26, 2023
- $ - - $ 35,322,335
August 27, 2023 - September 30, 2023
68,911 29.04 2,001,362 33,320,973
October 1, 2023 - October 28, 2023
77,117 25.95 2,001,470 31,319,503
Total
146,028 $ 27.41 4,002,832 $ 31,319,503

(1)
Includes shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of restricted shares which vested during the 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.~~
transactions occur.
~~(2)~~
In August 2017, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $20 million of our common stock. This program authorizes the Company to repurchase shares through September 30, 2020 and does not require the Company to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice. Shares repurchased under the program will be subsequently retired.

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Table of Contents

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
Amended and Restated Bylaws,, as amended through February 23, 2016 (incorporated by reference from Exhibit 3.1 of our Current Report on Form 8-K, filed on February 24, 2016)

4.1

Specimen Stock Certificate (incorporated by reference from Exhibit 4.1 to Amendment No. 3 to our Registration Statement on Form S-1, filed on October 1, 2004, Registration No. ~~333-118142)~~333-118142)
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

~~101.SCH~~
104
Cover Page Interactive Data File (formatted as Inline XBRL ~~Extension Schema~~
and contained in Exhibit 101)
~~101.CAL~~
* Management contract or compensatory plan or arrangement.
~~XBRL Extension Calculation~~
~~101.DEF~~
~~XBRL Extension Definition~~
~~101.LAB~~
~~XBRL Extension Label~~
~~101.PRE~~
~~XBRL Extension Presentation~~

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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: November 9, 2017~~Date: December 7, 2023

BUILD-A-BEAR WORKSHOP, INC.
(Registrant)


~~BUILD-A-BEAR WORKSHOP, INC.~~
~~(Registrant)~~

By:
/s/ Sharon John

Sharon John

President and Chief Executive Officer (on behalf of
the registrant and as principal executive officer)


By:
/s/ Voin Todorovic

Voin Todorovic

Chief Financial Officer
(on behalf of the registrant and as principal
financial officer)

22
27

	Restricted Stock				Performance Shares
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Outstanding, December 31, 2016		316,116	$	13.30		241,141	$	15.39
Granted		258,060		9.18		83,897		8.85
Vested		178,424		12.20		6,472		20.54
Forfeited		33,016		12.51		15,247		14.28
Canceled or expired		—		—		13,704		13.68
Outstanding, September 30, 2017		362,736	$	10.98		289,615	$	13.66

	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended						Thirty-nine weeks ended
	September 30,			October 1,			September 30,			October 1,			October 28,			October 29,			October 28,			October 29,
	2017			2016			2017			2016			2023			2022			2023			2022
Revenues:
Net retail sales		97.7	%		97.8	%		97.3	%		98.4	%		93.4	%		95.0	%		93.8	%		95.4	%
Commercial revenue		1.6			1.6			2.0			1.0			5.6			3.9			5.3			3.9
Franchise fees		0.7			0.6			0.7			0.6
International franchising														1.0			1.1			0.9			0.7
Total revenues		100.0			100.0			100.0			100.0			100.0			100.0			100.0			100.0

Costs and expenses:
Cost of merchandise sold - retail (1)		55.8			56.7			54.9			55.1			47.4			47.7			46.3			48.5
Cost of merchandise sold - commercial (1)		45.2			40.5			53.8			46.6			44.4			46.8			47.8			46.7
Cost of merchandise sold - international franchising⁽¹⁾														62.2			77.0			64.2			67.4
Total cost of merchandise sold														47.3			48.0			46.5			48.6
Consolidated gross profit														52.7			51.9			53.5			51.4
Selling, general and administrative		41.6			39.9			43.1			43.4			43.3			42.5			41.7			40.4
Store preopening		0.6			0.7			0.8			1.2
Interest expense (income), net		(0.0	)		(0.0	)		(0.0	)		(0.0	)
Total costs and expenses		97.4			96.7			98.3			99.3

Interest (income) expense, net														(0.3	)		0.0			(0.2	)		0.0
Income before income taxes		2.6			3.3			1.7			0.7			9.6			9.5			11.9			11.1
Income tax expense		0.9			1.1			0.6			0.3			2.6			2.3			2.9			2.6
Net income		1.7			2.2			1.1			0.4			7.1			7.1			9.1			8.5


Retail Gross Margin % (2)		44.2	%		43.3	%		45.1	%		44.9	%
Retail Gross Margin ⁽²⁾														52.6	%		52.3	%		53.7	%		51.5	%

(1)	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.
(2)	Retail gross margin ~~percentage~~ represents net retail sales less cost of merchandise sold –- retail; retail ~~and is expressed as a~~gross margin percentage ofrepresents retail gross margin divided by net retail sales.

	Thirteen weeks ended
	October 28, 2023
Impact from:
Existing stores	$	(1,243	)
Digital sales		879
New stores		1,776
Store closures		(965	)
Gift card breakage		(124	)
Foreign currency translation		920
Other		(61	)
Total Change	$	1,182

Period	(a) Total Number of Shares (or Units) Purchased⁽¹⁾		(b) Average Price Paid Per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs ⁽²⁾
Jul. 1, 2017 – Jul. 29, 2017		278	$	10.25		-	$	-
Aug. 1, 2017 – Aug. 26, 2017		800	$	9.10		-	$	20,000,000
Aug. 27, 2017 – Sep. 30, 2017		112,475	$	8.88		112,325	$	19,002,247
Total		113,553	$	8.89		112,325

Period	(a) Total Number of Shares (or Units) Purchased (1)		(b) Average Price Paid Per Share (or Unit)		(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
July 30, 2023 - August 26, 2023		-	$	-		-	$	35,322,335
August 27, 2023 - September 30, 2023		68,911		29.04		2,001,362		33,320,973
October 1, 2023 - October 28, 2023		77,117		25.95		2,001,470		31,319,503
Total		146,028	$	27.41		4,002,832	$	31,319,503

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		Amended and Restated Bylaws,, as amended through February 23, 2016 (incorporated by reference from Exhibit 3.1 of our Current Report on Form 8-K, filed on February 24, 2016)

4.1		Specimen Stock Certificate (incorporated by reference from Exhibit 4.1 to Amendment No. 3 to our Registration Statement on Form S-1, filed on October 1, 2004, Registration No. ~~333-118142)~~333-118142)

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

~~101.SCH~~ 104		Cover Page Interactive Data File (formatted as Inline XBRL ~~Extension Schema~~ and contained in Exhibit 101)

~~101.CAL~~

	BUILD-A-BEAR WORKSHOP, INC.
	(Registrant)

	~~BUILD-A-BEAR WORKSHOP, INC.~~
	~~(Registrant)~~

	By:	/s/ Sharon John
		Sharon John
		President and Chief Executive Officer (on behalf of the registrant and as principal executive officer)

	By:	/s/ Voin Todorovic
		Voin Todorovic
		Chief Financial Officer (on behalf of the registrant and as principal financial officer)