FORM 10-Q

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 ~~October~~July 30, ~~2021~~2022

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period from to

Commission file number: 001-32320

BUILD-A-BEAR WORKSHOP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

43-1883836

(State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)

415 South 18th St.

St. Louis, Missouri

63103

(Address of Principal Executive Offices)

(Zip Code)

(314) 423-8000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock	BBW	New York Stock Exchange

Table of Contents

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☐☒

Non-accelerated filer ☒☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~December 6, 2021,~~September 5, 2022, there were ~~16,327,849~~14,952,150 issued and outstanding shares of the registrant’s common stock.

Table of Contents

The condensed consolidated financial statements included herein are unaudited and have been prepared by Build-A-Bear Workshop, Inc. and its subsidiaries (collectively, the “Company”) pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet of the Company as of January ~~30, 2021~~29, 2022 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 January ~~30, 2021~~29, 2022, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on April ~~15, 2021.~~14, 2022.

~~The Company's results of operations in fiscal~~ ~~2020~~ ~~ended~~ ~~January 30, 2021~~ ~~were significantly negatively impacted by COVID which was declared a global pandemic by the World Health Organization in~~ ~~March 2020.~~ ~~In the beginning of fiscal~~ ~~2021~~ ~~most of the Company's United States store portfolio was open and operating while its stores~~Certain prior period amounts in the ~~United Kingdom, Canada, and Ireland remained temporarily closed. In~~notes to the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did ~~April 2021,~~ ~~stores in the United Kingdom reopened as the government lifted lockdown restrictions resulting in almost all of the Company's stores operating as of the end of the~~ ~~2021~~not ~~first~~ ~~fiscal quarter with the remaining stores in the United Kingdom and Ireland opening in the~~ ~~second~~ ~~fiscal quarter and ending the~~ ~~second~~ ~~fiscal quarter with all stores open. The majority of the Company's Canadian stores were temporarily closed~~affect net earnings attributable to ~~begin the~~ ~~second~~ ~~fiscal quarter with the majority reopening in~~ ~~June 2021~~ ~~and with all stores open at the end of~~ ~~second~~ ~~fiscal quarter. During the~~ ~~third~~ ~~quarter, temporary, unplanned store closures occurred due to COVID exposures on a limited basis, with 0 stores temporarily closed as of the end of the~~ ~~third~~ ~~fiscal quarter.~~Build-A-Bear Workshop, Inc.

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 ~~30, 2021.~~29, 2022.

As a result of the pandemic, governments enacted relief legislation and stimulus packages to help combat the economic effects through such things as payroll expense reimbursement and business and restart grants. Due to the nature of these grants relating to income, they can be presented in ~~one~~ of ~~two~~ ~~ways: (~~1~~) a credit in the income statement under a general heading such as "other income" or (~~2) as a reduction to the related expense. The Company applied for reimbursement of payroll expenses in certain jurisdictions through COVID related government programs for payroll paid to employees who were paid while ~~not~~ providing services to the Company and for business and restart grants from the United Kingdom government for businesses in the retail, hospitality and leisure sectors. The Company recorded a reduction of expenses of $0.4 million for the ~~thirteen~~ ~~weeks ended~~ ~~October 30, 2021~~ related to these wages within the Selling, general and administrative line in the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for employees in the United States upon receipt of cash from the U.S. Government and in Canada from the Canadian government. In the prior year, the Company did ~~not~~ record a reduction to expense for the full amount applied for under U.S. Government programs due to the new nature of the programs and uncertainty of collectability. As the cash was received in the current quarter for the full amount applied for, the Company recorded the reduction in expense ~~not~~ ~~recorded in the prior year. For the~~ ~~thirteen~~ ~~weeks ended~~ ~~October 31, 2020~~~~, the Company recorded a reduction to expense of $0.3 million. For the~~ ~~thirty-nine~~ ~~weeks ended~~ ~~October 30, 2021~~ ~~and~~ ~~October 31, 2020~~, the Company recorded a reduction of expense related to payroll reimbursements of $1.4 million and $3.3 million, respectively. The business and restart grants in the United Kingdom for businesses in the non-essential retail, hospitality and leisure sectors, were applied for on a per-property basis

~~to support businesses through the latest lockdown restrictions. The Company did~~ ~~not~~ ~~record income related to business or restart grants in the~~ ~~thirteen~~ ~~weeks ended~~ ~~October 30, 2021~~ ~~and~~ ~~October 31, 2020~~~~. For the~~ ~~thirty-nine~~ ~~weeks ended~~ ~~October 30, 2021~~, the Company recorded $0.9 million of business and restart grants. This amount was recorded as "other income" within the Selling, general and administrative line in the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). The Company did ~~not~~ ~~record income related to business or restart grants for the~~ ~~thirty-nine~~ ~~weeks ended~~ ~~October 31, 2020~~.

Costs of producing entertainment assets, which include direct costs, production overhead and development costs, are capitalized when incurred and are stated at the lower of cost, less accumulated amortization, or fair value. For film related costs, the Company expects assets to be monetized individually and will be amortized using the individual film-forecast-computation method which amortizes such costs in the same ratio that current period actual revenue bears to the estimated remaining unrecognized total revenues (ultimate revenue). Ultimate revenue includes estimates over a period ~~not~~ ~~to exceed~~ ~~ten~~ years from the date of initial release of the film. Participation costs and residuals are accrued and expensed over the applicable product life cycle based upon the ratio of the current period's revenues to the estimated remaining total revenues for each production.

Costs of entertainment productions are subject to recoverability assessments, which for content predominantly monetized individually, compare the estimated fair values with the unamortized cost, whenever events or changes in circumstances indicate that the fair value of the film ~~may~~ be less than the unamortized cost. The fair value is determined based on a discounted cash flow analysis of the cash flows directly attributable to the entertainment assets. The discounted cash flow analysis includes cash flow estimates of ultimate revenue as well as a discount rate (a Level 3 fair value measurement). The discount rate used in the Company’s discounted cash flow model will reflect the time value of money, expectations about variation in the amount or timing of the most likely cash flows, and the price market participants would seek for bearing the uncertainty inherent with the film asse~~t. The amount by which the unamortized costs of entertainment assets exceed their estimated fair values are written off. As of~~ ~~October 30, 2021~~, ~~January 30, 2021~~~~, and~~ ~~October 31, 2020~~~~, the Company had capitalized entertainment production costs of~~ ~~$0.8~~ ~~million, $1.7 million, and~~ ~~$0.4~~ ~~million, respectively. The~~ ~~October 30, 2021~~ ~~balance for entertainment production costs is mostly comprised of several in-development entertainment projects.~~

In ~~October 2021,~~ ~~the Company co-released the film Honey Girls and began recording film cost amortization. The Company does~~ ~~not~~ have any history with this type of entertainment transaction, therefore the Company made a reasonable estimate of ultimate revenues for the film, and amortization of the film costs. The Company recorded an immaterial amount of net revenue and film cost amortization for the ~~thirteen~~ ~~weeks ended~~ ~~October 30, 2021~~ as "other income/expense" within the Selling, general and administrative line in the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) and includes it in the financial information of the Commercial reportable segment presented in Note 11 ~~- Segment Information. Additionally, as a result of the delivery and release of the film, the Company recorded receivables totaling approximately $4.0 million during the~~ ~~third~~ quarter stemming from a refundable Canadian Film Tax Credit and other contractually obligations. These receivables were recorded as a reduction to the film costs associated with the movie as they relate directly to previously capitalized expenses. The remaining net production entertainment asset related the Honey Girls film as of ~~October 30, 2021~~ ~~is immaterial.~~

Currently, nearly all 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 ~~96%~~95% of consolidated revenue for the ~~third~~second quarter of fiscal ~~2021.~~2022. 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-managed stores, other retail-delivered operations and e-commerce demand (orders generated online ~~sales.~~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 ~~sales,~~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.

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, or sooner if the agreement is terminated prior to the end of the term. The Company classifies these initial, one-time nonrefundable franchise fee contract liabilities as deferred revenue on its consolidated balance sheet. Revenue from merchandise and fixture sales is recognized when control is transferred to the franchisee which generally occurs upon delivery.

The Company also incurs expenses directly related to the startup of new franchises, which may include finder’s fees, legal and travel costs, expenses related to its ongoing support of the franchises and employee compensation. Accordingly, the Company’s policy is to capitalize any finder’s fee, an incremental cost, and expense all other costs as incurred. Additionally, the Company amortizes these capitalized costs into expense in the same pattern as the development fee's recording of revenue as described previously. These capitalized costs for the thirteen and twenty-six weeks ended July 30, 2022 are not material to the financial statements.

The majority of the Company's leases relate to retail stores and corporate offices. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. Most new retail store leases have an original term of a five to ten-year base period and may include renewal options to extend the lease term beyond the initial base period. The extension periods are typically much shorter than the original lease term ~~giving~~given the Company's strategic decision to maintain a high level of lease optionality. Some leases also include early termination options, which can be exercised under specific conditions. Additionally, the Company may operate stores for a period of time on a month-to-month basis after the expiration of the lease term. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, certain leases contain incentives, such as construction allowances from landlords and/or rent abatements subsequent to taking possession of the leased property.

The table below presents certain information related to the lease costs for operating leases for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021~~2022 and ~~October~~July 31, ~~2020~~2021 (in thousands).

The table below presents supplemental cash flow information related to leases for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021~~2022 and ~~October~~July 31, ~~2020~~2021 (in thousands).

Operating cash ~~flow~~flows for operating leases for the ~~third~~second quarter and year-to-date fiscal ~~2021~~2022 ~~exceeded expense recorded~~decreased from the operating cash flows for operating leases for the same periods in fiscal 2021, which is expected to continue for the remainder of fiscal ~~2021,~~2022, as the ~~Company's deferred rent obligations obtained during rent negotiations~~Company made payments related to lease deferrals in fiscal 2021 that were negotiated in fiscal 2020 ~~are to be paid~~ during ~~fiscal~~ ~~2021.~~ ~~The Company has approximately $0.7 million remaining of rent deferrals to be paid in~~ the ~~remainder of fiscal~~ ~~2021,~~ ~~whose liability is recorded in the Operating lease liability short term line of the Condensed Consolidated Balance Sheet.~~pandemic.

As of ~~October~~July 30, ~~2021~~2022 and ~~October~~July 31, ~~2020~~2021, the weighted-average remaining operating lease term was ~~4.5~~4.3 years and ~~5.0~~4.6 years, respectively, and the weighted-average discount rate was ~~6.0%~~5.7% and 6.0%, respectively, for operating leases recognized on the Company's Condensed Consolidated Balance Sheets.

For the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, 2022 and for the thirteen and twenty-six weeks ended July 31, 2021, the Company did not incur impairment charges against its right-of-use operating lease assets. ~~For the~~ ~~thirteen~~ ~~and~~ ~~thirty-nine~~ ~~weeks ended~~ ~~October 31, 2020~~~~, the Company incurred right-of-use asset impairment charges of $0.1 million and $3.6 million, respectively.~~

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the balance sheet (in thousands).

As of ~~October~~July 30, ~~2021~~2022, the Company had additional executed leases that had not yet commenced with operating lease liabilities of ~~$1.5~~$2.4 million. These leases are expected to commence in the ~~fourth~~third quarter of fiscal ~~2021~~2022 with lease terms ranging from ~~five~~one to ten years.

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

On April 14, 2020, the Board of Directors (the “Board”) of Build-A-Bear Workshop, Inc. (the “Company”) adopted, subject to stockholder approval, the Build-A-Bear Workshop, Inc. 2020 Omnibus Incentive Plan (the “2020 Incentive Plan”). On June 11, 2020, at the Company’s 2020 Annual Meeting of Stockholders (the “Annual Meeting”), the Company’s stockholders approved the 2020 Incentive Plan. The 2020 Incentive Plan, which is administered by the Compensation and Development

Committee of the Board (the "Compensation Committee"), permits the ~~grant~~granting of stock options (including both incentive and non-qualified stock options), stock appreciation rights, other stock-based awards, including restricted stock and restricted stock units, cash-based awards, and performance awards pursuant to the terms of the 2020 Incentive Plan. The 2020 Incentive Plan will terminate on April 14, 2030, unless terminated earlier by the Board. The number of shares of the Company’s common stock authorized for issuance under the 2020 Incentive Plan is 1,000,000, plus shares of stock that remained available for issuance under the Build-A-Bear Workshop, Inc. 2017 Omnibus Incentive Plan (the “2017 Incentive Plan”) at the time the 2020 Incentive Plan was approved by the Company’s stockholders, and shares that are subject to outstanding awards made under the 2017 Incentive Plan that on or after April 14, 2020 may be forfeited, expire or be settled for cash.

For the thirteen weeks ended ~~October~~July 30, ~~2021~~2022 and ~~October~~July 31, ~~2020~~2021, ~~Selling,~~selling, general and administrative expense included stock-based compensation expense of $0.6 million and ~~$0.5~~$0.8 million, respectively. For the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021~~2022 and ~~October~~July 31, ~~2020~~2021, ~~Selling,~~selling, general, and administrative expense included stock-based compensation expense of ~~$2.1~~$1.3 million and ~~$1.3~~$1.5 million, respectively. As of ~~October~~July 30, ~~2021~~2022, there was ~~$3.0~~$5.6 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 ~~1.4~~2.0 years.

The following table is a summary of the balances and activity for stock options for the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021~~2022:

The following table is a summary of the balances and activity related to time-based and performance-based restricted stock for the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021~~2022:

The total fair value of shares vested during the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021~~2022 and ~~October~~July 31, ~~2020~~2021 was ~~$2.2~~$2.0 million and ~~$2.3~~$1.8 million, respectively.

The outstanding performance shares as of ~~October~~July 30, ~~2021~~2022 consist of the following:

The Company's effective tax rate was ~~25.1%~~23.5% and ~~24.3%~~22.4% for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021~~2022 compared to ~~0.6%~~27.9% and ~~(8)%~~24.0% for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020~~2021. ~~The~~In the first half of fiscal 2022 and fiscal 2021, the effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the tax impact of equity awards vesting. ~~While~~In addition, in the second quarter of fiscal 2022, the Company isremains in a full valuation allowance in certain foreign jurisdictions, while in the second quarter of fiscal 2021, the Company was still in a full valuation allowance globally, and it recorded tax expense on the pretax income earned ~~in the~~ ~~first~~~~thirty-nine~~ ~~weeks of fiscal~~ ~~2021~~based on its projected current tax expense. ~~The~~ ~~first~~~~thirty-nine~~ ~~weeks of fiscal~~ ~~2020~~ were impacted by a $3.3 million valuation allowance recorded on the beginning balance of the net deferred tax assets in certain jurisdictions, offset by $0.8 million of benefit as a result of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. In addition, no ~~tax benefit was recorded on the year-to-date pretax loss for the~~ ~~first~~~~thirty-nine~~ ~~weeks of fiscal~~ ~~2020~~ ~~as a full valuation allowance was recorded globally.~~

The following table sets forth the changes in stockholders’ equity (in thousands) for the thirteen weeks ended ~~October~~July 30, ~~2021~~2022 and ~~October~~July 31, ~~2020~~2021 (in thousands):

The following table sets forth the changes in stockholders’ equity (in thousands) for the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021~~2022 and ~~October~~July 31, ~~2020~~2021 (in thousands):

Subsequent to July 30, 2022 and through August 9, 2022, the Company has utilized $1.3 million in cash to repurchase 80,558 shares under our $25.0 million program that was authorized by its Board of Directors on November 30, 2021, which has resulted in the completion of the $25.0 million stock buyback program.

On August 31, 2022, the Company announced that its Board of Directors authorized a share repurchase program of up to $50.0 million. The primary source of funding for the share repurchase program is expected to be cash 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, which authorizes the Company to repurchase shares through August 31, 2025, 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.

The following table sets forth the computation of basic and diluted net income/(loss) per share (in thousands, except share and per share data):

In calculating the diluted income per share for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021~~2022, options to purchase ~~52,812~~89,558 and ~~242,445~~137,137 shares of common stock, respectively, that were outstanding at the end of the period were not included in the computation of diluted income per share due to their anti-dilutive effect. For the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020~~2021, options to purchase ~~822,360~~63,877 and ~~849,351~~246,534 shares of common stock, respectively, that were outstanding at the end of the period were not included in the computation of diluted income per share due to their anti-dilutive effect.

The difference between comprehensive income or loss and net income or loss is the result of foreign currency translation adjustments on the balance sheets of subsidiaries whose functional currency is not the U.S. Dollar. The accumulated other comprehensive income (loss) balance aton ~~October~~July 30, ~~2021~~2022 and ~~October~~July 31, ~~2020~~2021 was comprised entirely of foreign currency translation. For the thirteen weeks ended ~~October~~July 30, ~~2021~~2022 and ~~October~~July 31, ~~2020~~2021, the Company had 0no reclassifications out of accumulated other comprehensive income (loss).

The Company’s operations are conducted through three operating segments consisting of direct-to-consumer (“DTC”), commercial and international franchising. The DTC segment includes the operating activities of corporately-managed locations and other retail delivery operations in the ~~United States (U.S.)~~U.S., Canada, Ireland and the ~~United Kingdom (“~~U.K.”), including the Company’s e-commerce sites and temporary stores. The commercial segment includes the Company’s transactions with other businesses, mainly comprised of licensing the Company’s intellectual properties for third-party use and wholesale 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):

The Company’s reportable segments are primarily determined by the types of products and services that they offer. Each reportable segment may operate in many geographic areas. Revenues are recognized in the geographic areas based on the location of the customer or franchisee. The following schedule is a summary of the Company’s sales to external customers and long-lived assets by geographic area (in thousands):

In the normal course of business, the Company is subject to legal proceedings, government inquiries and claims, and other commercial disputes. If one or more of these matters has an unfavorable resolution, it is possible that the results of operations, liquidity or financial position of the Company could be materially affected in any particular period. The Company accrues a liability for these types of contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. Gain contingencies are recorded when the underlying uncertainty has been settled.

Assessments made by the U.K. customs authority in 2012 were appealed by the Company, which has paid the disputed duty, strictly under protest, pending the outcome of the continuing dispute, and this is included in receivables, net in the DTC segment. The U.K. customs authority contested the Company's appeal. Rulings by the First Tier Tribunal in November 2019 and Upper Tribunal in March 2021 held that duty was due on some, but not all, of the products at issue. The Company petitioned the Court of ~~Appeals~~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 ~~is expected to be~~was heard by the Court of ~~Appeals~~Appeal during the first quarter of fiscal 2022, and the Court of Appeal dismissed the appeal in the second quarter of fiscal 2022. The Company has applied for permission to appeal to the UK Supreme Court. 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 ~~October~~July 30, ~~2021~~2022, the Company had a gross receivable balance of ~~$4.9~~$4.3 million and a reserve of ~~$3.7~~$3.3 million, leaving a net receivable of ~~$1.2~~$1.0 million. The Company believes that the outcome of this dispute will not have a material adverse impact on the results of operations, liquidity or financial position of the Company.

In ~~13.~~August 2021, a putative class action lawsuit was filed against Build-A-Bear Workshop, Inc. The plaintiff amended the complaint during the Company’s first ~~Subsequent Events~~

Onquarter of fiscal ~~November 30, 2021~~2022. As amended, the complaint asserts claims under the Telephone Consumer Protection Act (the "TCPA") alleging that the Company continued to send marketing text messages to mobile phone numbers after those numbers had allegedly opted-out of receiving them. Statutory damages under the TCPA are assessed at up to $500 per text message, and up to $1,500 per text message if the violation was knowing or willful. Following a mediation session on August 16, 2022, the Company ~~announced that its Board of Directors authorized~~is continuing preliminary discussions with the plaintiff and an insurance carrier about a ~~share repurchase program of up~~possible settlement, which, if finalized, is not expected to ~~$25 million. The primary source of funding~~result in a significant expense for the share repurchase program is expected to be cash 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 the Company to repurchase shares ~~through~~ ~~November 30, 2023,~~ ~~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.~~

On ~~November 30, 2021~~ ~~the Company announced that its Board of Directors authorized a special cash dividend of $1.25 per share to be paid on~~ ~~December 27, 2021~~ ~~to all shareholders of record as of~~ ~~December 10, 2021.~~Company.

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties, and we undertake no obligation to update these statements except as required by the federal securities laws. Our actual results may differ materially from the results discussed in the forward-looking statements. These risks and uncertainties include, without limitation, those detailed under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January ~~30, 2021,~~29, 2022, as filed with the SEC, and include the following:

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 nearly 25 years, Build-A-Bear has become a brand with high consumer awareness and positive affinity with over 200 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~~consumer base 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” retail entertainment experience under the Build-A-Bear Workshop brand, in which guests participate in the stuffing, dressing, accessorizing~~has delivered sustained growth, engaging consumer loyalty program and ~~naming of their own teddy bears~~robust digital marketing and ~~other stuffed animals.~~content capabilities with industry-leading partners. As of ~~October~~July 30, ~~2021,~~2022, we had ~~349~~346 corporately-managed stores globally and ~~had 73 internationally~~6 seasonal locations, 65 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 experience, and 62 international franchised stores under the Build-A-Bear Workshop brand. In addition to these stores, we sell products on our company-owned e-commerce sites and third-party marketplace sites, our franchisees sell products through sites that they manage as well as other ~~third party~~third-party marketplace sites and other parties sell products on their sites under wholesale agreements.

We operate in three segments that share the same infrastructure, including management, systems, merchandising and marketing, and generate revenues as follows:

Selected financial data attributable to each segment for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021~~2022 and ~~October~~July 31, ~~2020~~2021 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

~~Currently, we primarily~~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 operate ~~specialty~~a vertical retail channel with stores that ~~provide a “make your own stuffed animal” interactive entertainment experience in which guests visit a variety of stations to make and customize a stuffed animal. Our retail concept is~~feature a unique combination of experience and product in which guests can "make their own stuffed animals" by participating in the stuffing, fluffing, dressing, accessorizing, and ~~we are focused on enhancing our brand equity while meeting the needs~~naming of ~~a broad range of consumers including families with children, teens~~their teddy bears and ~~adults by offering a relevant selection of premium products that meet high quality standards and are on trend. In addition, products are sold through our~~other stuffed animals. We also operate e-commerce sites that ~~offer curated experiences with targeted offerings~~focus on gift-giving, collectible merchandise and licensed products that appeal to consumers ~~looking~~that have an affinity for ~~affinity~~characters from a range of licensed properties. Over the last nearly 25 years, Build-A-Bear has become a brand with high consumer awareness and gifting products. We believe the hands-on and interactive nature of our store, our high touch service model and engaging digital shopping experiences result in guests forming an emotional connection with our brand.positive affinity. We believe there are opportunities to leverage this ~~emotional connection~~brand strength, pop-culture status and ~~the strength of the Build-A-Bear brand~~multi-generational appeal and generate incremental revenue and profits ~~given the high consumer recognition and strong positioning as a trusted, high-quality brand~~ through licensing our intellectual properties ~~as well as~~ through content and entertainment ~~development.~~development for kids and adults while also offering products at wholesale and in non-plush consumer categories through outbound licensing agreements with leading manufacturers.

At the beginning of fiscal 2021, our United States store portfolio was open and operating while our stores in the United Kingdom, Ireland and Canada remained temporarily closed. In April 2021, stores in the United Kingdom reopened as the government lifted lockdown restrictions resulting in almost all of our stores operating at the end of the 2021 first fiscal quarter with the remaining stores in the United Kingdom and Ireland opening in the second fiscal quarter thereby ending the second fiscal quarter with all stores open in those geographies. The majority of our Canadian stores remained temporarily closed to begin the second quarter with the majority reopening in June 2021 and with all stores ending the second fiscal quarter open. Our year-over-year results discussed below are, and we expect for the remainder of 2021 will be, impacted by prior year store closures and operating hour reductions as a result of the pandemic. During the third quarter, temporary, unplanned store closures occurred due to COVID exposures on a limited basis, with no stores temporarily closed as of the end of the third fiscal quarter.

We believe we have built the infrastructure to respond with greater agility to deal with ongoing and future potential uncertainty and we expect to deliver continued growth in total revenues and profit in fiscal ~~2021~~2022 compared to fiscal ~~2020 and fiscal 2019.~~2021. While we believe that we have seen benefits from pandemic-driven factors such as pent-up demand and stimulus packages, we believe that the initiatives and investments that were put in place prior to the pandemic, and in many cases accelerated during the pandemic, are driving improved results, which we expect to continue. We remain focused on our strategic priorities which are centered primarily on three key areas:

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

As of ~~October~~July 30, ~~2021, 40%~~2022, 45% of our corporately-managed stores were in an updated Discovery format. We also expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans. The future of our retail store fleet may include expansion into more non-traditional locations, including concourse format shops and by expansion in other locations outside of traditional malls.

Our first franchisee location was opened in November 2003. All franchised stores have similar signage, store layout, merchandise characteristics and guest experience as our corporately-managed stores. As of ~~October~~July 30, ~~2021,~~2022, we had six master franchise agreements, which typically grant franchise rights for a particular country or group of countries, covering an aggregate of 1110 countries.

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

In the ordinary course of business, we anticipate signing additional master franchise agreements in the future and terminating other such agreements. We source fixtures and other supplies for our franchisees from China which significantly reduces the capital and lowers the expenses required to open franchises. We are leveraging new formats that have been developed for our corporately-managed locations such as concourses and shop-in-shops with our franchisees.

The following table sets forth, for the periods indicated, selected income statement data expressed as a percentage of total revenues, except where otherwise indicated. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales, commercial revenue, international franchising, respectively, as well as immaterial rounding:

Thirteen weeks ended ~~October~~July 30, ~~2021~~2022 compared to thirteen weeks ended ~~October~~July 31, ~~2020~~2021

Total revenues. Consolidated revenues increased ~~27.4%~~6.3%, primarily driven by ~~a 26.8%~~an 8.3% increase in North America and partially offset by a ~~30.3% increase~~9.8% decrease in Europe. The ~~increase in North America and Europe~~overall revenue growth was primarily driven by increased retail ~~store operating days compared to the same period~~transactions in North American brick and mortar stores which had a significant increase in consumer traffic, as well as increases in the ~~prior year which saw temporary store closures due to the pandemic~~commercial and ~~increased e-commerce sales.~~international franchising segments' revenue.

Net retail sales for the thirteen weeks ended ~~October~~July 30, ~~2021~~2022 were ~~$91.6~~$95.9 million, compared to ~~$72.4~~$91.3 million for the thirteen weeks ended ~~October~~July 31, ~~2020,~~2021, an increase of ~~$19.2~~$4.6 million, or ~~26.5%~~5.0%, compared to the prior year period. The components of this increase are as follows (dollars in millions):

The retail revenue increase was primarily the result of ~~the~~an increase in ~~store operating days of corporately-managed stores~~demand for our product and ~~consolidated e-commerce sales.~~in-person interactive experience (partially offset by a decrease in digital sales), select strategic price increases, and lower promotional activity. The negative foreign currency translation effect is due to the British Pound weakening against the US Dollar during the fiscal 2022 second quarter. This negative foreign currency effect has, in turn, decreased European revenue compared to the fiscal 2021 second quarter.

Commercial revenue was ~~$2.7~~$4.1 million for the thirteen weeks ended ~~October~~July 30, ~~2021~~2022 compared to ~~$1.9~~$2.9 million for the thirteen weeks ended ~~October~~July 31, ~~2020.~~2021. The ~~$0.8~~$1.2 million increase is primarily the result of increased sales volume from our commercial ~~customers as some stability returned to~~accounts through our third-party retail model.

International franchising revenue was ~~$0.8~~$0.7 million for the thirteen weeks ended ~~October~~July 30, ~~2021~~2022 compared to ~~$0.4~~$0.5 million for the thirteen weeks ended ~~October~~July 31, ~~2020.~~2021. The ~~$0.4~~$0.2 million increase is primarily due to having ~~more stores~~fewer temporary franchisee store closures in ~~operation in 2021~~2022 compared to the same period in ~~2020 when significantly more locations were temporarily closed due to pandemic-related mandated government restrictions.~~2021.

Retail gross margin. Retail gross margin dollars ~~increased $14.0~~decreased $1.1 million to ~~$47.6~~$47.5 million ~~compared to~~from $48.6 million for the thirteen weeks ended ~~October~~July 31, ~~2020.~~2021. The retail gross margin rate ~~increased 550~~decreased 380 basis points compared to the prior year primarily driven by an increase in ~~corporately-managed retail sales,~~inflationary pressures mostly shown in significant freight increases, while being partially offset by increased leverage of fixed occupancy and distribution costs ~~as a result of rent negotiations that began during the prior fiscal year, and expansion of merchandise margin.~~driven by higher sales.

Selling, general and administrative. Selling, general and administrative ~~(SG&A)~~("SG&A") expenses were ~~$41.7~~$42.3 million, or ~~43.8%~~42.0% of consolidated revenue, for the thirteen weeks ended ~~October~~July 30, ~~2021,~~2022, compared to ~~$33.1~~$40.9 million, or ~~44.3%~~43.2% of consolidated revenue, for the thirteen weeks ended ~~October~~July 31, ~~2020.~~2021. The increase in overall expense was driven by higher store labor costs ~~given~~to service the lifting of capacity restrictions and expanded operating hours in 2021 compared to 2020. In addition, the Company recorded full corporate salaries in 2021 while the prior year included temporary wage reductions as part of its pandemic-related cost containment initiatives. In addition, the change in SG&A reflects an increase in variable costs driven by sales growth initiatives inclusive of higher marketing spend and performance incentive programs.

~~Interest expense (income), net.~~ ~~Interest income was $2,000 for the thirteen weeks ended October 30, 2021 compared to interest expense of $2,000 for the thirteen weeks ended October 31, 2020.~~

~~Benefit/Provision for income taxes~~. Income tax expense was $2.0 million with a tax rate of 25.1% for the thirteen weeks ended October 30, 2021 compared to an expense of less than $0.1 million with a tax rate of 0.6% for the thirteen weeks ended October 31, 2020. In the third quarter of fiscal 2021 the effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense. While the Company is still in a full valuation allowance globally, it recorded tax expense on the pretax income earned in the third quarter of fiscal 2021 based on its projected current tax expense. In the third quarter of fiscal 2020, the effective tax rate differed from the statutory rate of 21% primarily due to no tax benefit being recorded on the current period pretax loss as a full valuation allowance has now been recorded globally.

~~Thirty-nine weeks ended October 30, 2021 compared to thirty-nine weeks ended October 31, 2020~~

~~Total revenues.~~ Consolidated revenues increased 74.2%, including an 80.1% increase in North America and a 39.5% increase in Europe. The increase in North America and Europe was primarily driven by increased retail store operating days compared to the same period in the prior year which saw temporary store closures due to the pandemic and increased e-commerce sales.

~~Net retail sales for the thirty-nine weeks ended October 30, 2021 were~~ ~~$272.1~~ ~~million, compared to $157.4 million for the thirty-nine weeks ended October 31, 2020, an increase~~ ~~of $114.7 million, or 72.9%, compared to the prior year period. The components of this increase are as follows (dollars in millions):~~

~~The retail revenue increase was primarily the result of the increase in store operating days of corporately-managed stores and consolidated e-commerce sales.~~

Commercial revenue was $7.8 million for the thirty-nine weeks ended October 30, 2021 compared to $3.1 million for the thirty-nine weeks ended October 31, 2020. The $4.7 million increase is the result of increased sales ~~volume from our commercial customers versus~~demand within the ~~prior year which was impacted by pandemic drive closures of third-party retail locations serviced by these customers.~~

International franchising revenue was $1.7 million for the thirty-nine weeks ended October 30, 2021 compared to $1.2 million for the thirty-nine weeks ended October 31, 2020. The $0.5 million increase is primarily due to having more stores in operation in 2021 compared to the same period in 2020 when significantly more locations were temporarily closed due to pandemic-related mandated government restrictions.

~~Retail gross margin.~~ Retail gross margin dollars increased $88.3 million to $143.4 million compared to the thirty-nine weeks ended October 31, 2020. The retail gross margin rate increased 1,770 basis points primarily driven by an increase in corporately-managed retail sales, a decrease in fixed occupancy costs recorded as a result of rent negotiations that began during the prior fiscal year, and expansion of merchandise margin.

~~Selling, general and administrative.~~ SG&A expenses were $117.9 million, or 41.9% of consolidated revenue, for the thirty-nine weeks ended October 30, 2021, compared to $81.3 million, or 50.3% of consolidated revenue, for the thirty-nine weeks ended October 31, 2020. The increase in overall expense was primarily due to higher labor costs given the re-opening of our store base and the Company recording full corporate salaries for the thirty-nine weeks ended October 30, 2021 as opposed to the prior year

~~when pandemic-related cost containment initiatives included temporary wage reductions.~~quarter. Additionally, the change reflects an increase in variable costs driven by sales growth initiatives inclusive of higher marketing ~~spend and funding of performance incentive programs.~~spend.

~~Benefit/~~Provision for income taxes. Income tax expense was ~~$7.4~~$1.8 million with a tax rate of ~~24.3%~~23.5% for the ~~thirty-nine~~thirteen weeks ended ~~October~~July 30, ~~2021~~2022 as compared to ~~$2.5~~$2.6 million with a tax rate ~~(8)%~~ of 27.9% for the ~~thirty-nine~~thirteen weeks ended ~~October~~July 31, ~~2020.~~2021. In the ~~first thirty-nine weeks~~second quarter of fiscal 2022 and fiscal 2021, the effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the tax impact of equity awards vesting. In addition, in the second quarter of fiscal 2022, the Company remains in a full valuation allowance in certain foreign jurisdictions, while in the second quarter of fiscal 2021, the Company was still in a full valuation allowance globally, and it recorded tax expense on the pretax income earned based on its projected current tax expense.

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Twenty-six weeks ended July 30, 2022 compared to twenty-six weeks ended July 31, 2021

Total revenues. Consolidated revenues increased 17.1%, primarily driven by a 14.4% increase in North America and partially offset by a 1.1% decrease in Europe. The overall revenue growth was primarily driven by increased retail transactions in brick and mortar stores which benefitted from higher consumer traffic, as well as an increase in the commercial and international franchising segments' revenue.

Net retail sales for the twenty-six weeks ended July 30, 2022 were $208.8 million, compared to $180.5 million for the twenty-six weeks ended July 31, 2021, an increase of $28.3 million, or 15.7%, compared to the prior year period. The components of this increase are as follows (dollars in millions):

	Twenty-six weeks ended
	July 30, 2022
Impact from:
Existing stores	$	31,083
Digital sales		(1,777	)
New stores		1,779
Store closures		(2,450	)
Gift card breakage		644
Foreign currency translation		(1,783	)
Other		775
Total Change	$	28,271

The retail revenue increase was primarily the result of an increase in demand for our product and in-person interactive experience (partially offset by a decrease in digital sales), select strategic price increases, and lower promotional activity. The negative foreign currency translation effect is due to the British Pound weakening against the US Dollar during the fiscal 2022 first half.

Commercial revenue was $8.3 million for the twenty-six weeks ended July 30, 2022 compared to $5.1 million for the twenty-six weeks ended July 31, 2021. The $3.2 million increase is primarily the result of increased sales volume from our commercial accounts through our third-party retail model.

International franchising revenue was $1.2 million for the twenty-six weeks ended July 30, 2022 compared to $0.9 million for the twenty-six weeks ended July 31, 2021. The $0.3 million increase is primarily due to having fewer temporary store closures in 2022 compared to the same period in 2021.

Retail gross margin. Retail gross margin dollars increased $11.1 million to $106.8 million from $95.7 million for the twenty-six weeks ended July 31, 2021. The retail gross margin rate decreased 190 basis points compared to the prior year primarily driven by an increase in inflationary pressures mostly shown in significant freight increases, while being partially offset by increased leverage of fixed occupancy and distribution costs driven by higher sales.

Selling, general and administrative. Selling, general and administrative ("SG&A") expenses were $85.9 million, or 39.3% of consolidated revenue, for the twenty-six weeks ended July 30, 2022, compared to $76.2 million, or 40.9% of consolidated revenue, for the twenty-six weeks ended July 31, 2021. The increase in overall expense was driven by higher store labor costs to service the increased retail sales demand for the year to date. Additionally, the change reflects an increase in variable costs driven by sales growth initiatives inclusive of higher marketing spend.

Interest expense. Interest expense was $22,000 for the twenty-six weeks ended July 30, 2022 compared to interest expense of $13,000 for the twenty-six weeks ended July 31, 2021, resulting in an immaterial difference.

Provision for income taxes. Income tax expense was $5.8 million with a tax rate of 22.4% for the twenty-six weeks ended July 30, 2022 as compared to $5.4 million with a tax rate of 24.0% for the twenty-six weeks ended July 31, 2021. In the first ~~thirty-nine weeks~~half of fiscal ~~2020,~~2022 and fiscal 2021, the effective tax rate differed from the statutory rate of 21% primarily due to nostate income tax ~~benefit being recorded on~~expense partially offset by the ~~current period pretax loss as~~tax impact of equity awards vesting. In addition, in the first half of fiscal 2022, the Company remains in a full valuation allowance ~~has now been recorded globally. In addition,~~in certain foreign jurisdictions, while in the first ~~thirty-nine weeks~~half of fiscal ~~2020~~2021, the Company was ~~impacted by the $3.3 million~~still in a full valuation allowance globally, and it recorded tax expense on the ~~beginning balance~~pretax income earned based on its projected current tax expense.

Table of ~~the net deferred tax assets in certain jurisdictions, offset by $0.8 million of benefit as a result of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.~~

Contents

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 existing store and e-commerce sales; (4) fluctuations in the profitability of our stores; (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)~~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 new store openings, closings, relocations and remodeling and related expenses; (8) changes in consumer preferences; (9) the effectiveness of our inventory management; (10) the actions of our competitors or mall anchors and co-tenants; (11) seasonal shopping patterns and holiday and vacation schedules; (12) disruptions in store operations due to civil unrest; and (13) weather conditions.

The timing of store closures, relocations, remodels, openings and ~~openings (and re-openings)~~re-openings may result in fluctuations in quarterly results based on the revenues and expenses associated with each store location. Expenses related to store closings are typically incurred in stages: when the decision is made to close the store typically associated with a lease event such as an expiration or lease triggered clause; when the closure is communicated to store associates; and at the time of closure. We typically incur most preopening costs for a new store in the three months immediately preceding the store’s opening.

Because our retail operations include toy products which have sales that historically peak in relation to the holiday season as part of our revenue model, our sales have historically been highest in our fourth quarter. The timing of holidays and school vacations can impact our quarterly results. We cannot provide assurance that this will continue to be the case. In addition, for accounting purposes, the quarters of each fiscal year consist of 13 weeks, although we will have a 14-week quarter approximately once every six years. For example, the 2014 fiscal fourth quarter had 14 weeks.

Liquidity and Capital Resources

As of ~~October~~July 30, ~~2021,~~2022, we had a consolidated cash balance of ~~$48.5~~$14.4 million, ~~approximately~~ ~~79%~~48% of which was domiciled within the ~~United States.~~U.S. Historically, our cash requirements have been primarily for the relocation and remodeling of existing stores in our new design, opening of new stores, investments in information technology infrastructure and working capital. Over the past several years, we have met these requirements through capital generated from cash flow provided by operations.

~~Table of Contents~~

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

	Twenty-six weeks ended
	July 30,			July 31,
	2022			2021
Net cash provided by operating activities	$	6,690		$	18,394
Net cash used in investing activities		(4,064	)		(1,553	)
Net cash used in financing activities		(21,540	)		(625	)
Effect of exchange rates on cash		506			80
Increase (decrease) in cash, cash equivalents, and restricted cash	$	(18,408	)	$	16,296

Thirty-nine weeks ended

October 30,

October 31,

2021

2020

Net cash provided by operating activities
$ 17,235 $ 3,068
Net cash used in investing activities
(4,644 ) (4,029 )
Net cash provided by (used in) financing activities
924 (114 )
Effect of exchange rates on cash
146 143
Increase (decrease) in cash, cash equivalents, and restricted cash
$ 13,661 $ (932 )

Operating Activities. Cash provided by operating activities ~~increased $14.2~~decreased $11.7 million for the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021,~~2022, as compared to the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020.~~2021. This ~~increase~~decrease in cash from operating activities was primarily driven by an increase in cash spent on inventory purchases, as we proactively and strategically accelerated the timing of our order placement to mitigate the continuing inflationary pressures that were experienced in the fiscal 2022 first half, offset by increased ~~retail store operating days at corporately-managed stores and~~ sales volume, ~~to commercial customers~~ resulting in higher net income offset by an increase in cash spend on inventory purchases in advance of the holiday season in the fiscal fourth quarter, increased spend on operating leases with rent deferral paybacks, and an increase in receivables stemming from the release of an entertainment product.income.

Investing Activities. Cash used in investing activities increased ~~$0.6~~$2.5 million for the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021~~2022 as compared to the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020.~~2021. This increase in cash ~~from~~used in investing activities was primarily driven by ~~spend~~an increase in spending on ~~information technology~~capital expenditures related to IT projects and ~~build out~~new store openings.

Table of ~~new stores in the United States.~~

Contents

Financing Activities. Cash ~~provided by~~used in financing activities increased ~~$1.0~~$20.9 million for the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021,~~2022, as compared to the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020.~~2021. This increase in cash ~~from~~used in financing activities was driven primarily by ~~proceeds from~~repurchases of our common stock ~~option exercises offset by stock compensation vesting resulting~~for $19.4 million in ~~shares withheld for taxes.~~the first half of fiscal 2022.

Capital Resources: We have a revolving credit and security agreement with PNC Bank, as agent, that provides for a secured revolving loan in aggregate principal of up to $25.0 million, subject to a borrowing base formula. Borrowings under the agreement bear interest at (a) a base rate determined under the agreement, or (b) the borrower's option, at a rate based on LIBOR, plus in either case a margin based on average undrawn availability as determined in accordance with the agreement. As of ~~October~~July 30, ~~2021,~~2022, our borrowing base was ~~slightly more than $16.7~~$25.0 million. As a result of a ~~$750,000~~$500,000 letter of credit against the line of credit at the end of the fiscal 2021 second quarter, approximately ~~$16.0~~$24.5 million was available for borrowing. We had no outstanding borrowings as of ~~the end of October~~July 30, ~~2021.~~2022.

Most of our corporately-managed retail stores are located within shopping malls and all are operated under leases classified as operating leases. Our leases in North America have shifted to shorter term leases, many of which include variable rent structures, to provide flexibility in aligning stores with market trends. Our leases typically require us to pay personal property taxes, our pro rata share of real property taxes of the shopping mall, our own utilities, repairs and maintenance in our store, a pro rata share of the malls’ common area maintenance and, in some instances, merchant association fees and media fund contributions. Many new leases contain incentives to help defray the cost of construction of a new store. Typically, a portion of the incentive must be repaid to the landlord if we choose to terminate the lease before the end of its initial 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 upward to reflect the current market ~~rates.~~rates if they have increased. The leases typically provide the lessee with the first right for renewal at the end of the ~~lease.~~lease term. Real estate taxes 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.

Capital spending through the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 30, ~~2021~~2022 totaled $~~4.6~~4.1 million for IT projects and new store openings, and we expect to spend approximately $8$10 to ~~$10~~$15 million on capital expenditures ~~for~~in fiscal ~~2021~~2022.

~~Table~~

We have various contractual or other obligations, including operating lease commitments and obligations under deferred compensation plans. As of ~~Contents~~

July 30, 2022, we had purchase obligations totaling approximately $94.6 million, of which $25.5 million are due in the next 12 months. We believe our operating cash flows are sufficient to meet our material cash requirements for at least the next 12 months.

As of July 30, 2022, we have utilized $11.2 million in cash to repurchase 700,720 shares in the thirteen weeks ended July 30, 2022 and utilized $19.4 million in cash to repurchase 1,196,568 shares in the twenty-six weeks ended July 30, 2022. On August 9, 2022, we completed the $25.0 million stock buyback plan that was approved by the Board of Directors on November 30, 2021. Our execution of the buyback plan resulted in repurchasing nearly 10% of the shares outstanding at the end of the fiscal 2021 third quarter.

On August 31, 2022 we announced that our Board of Directors authorized a share repurchase program of up to ~~$25~~$50.0 million. The primary source of funding for the share repurchase program is expected to be cash on hand. ~~The~~ 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 ~~November 30, 2023,~~August 31, 2025, 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. We believe that the multi-year, multi-million dollar share buy-back program is reflective of the strong confidence that the Board of Directors has in the future of ~~Build-A-Bear.~~the Company.

On November 30, 2021 we announced that our Board of Directors authorized a special cash dividend of $1.25 per share to be paid on December 27, 2021 to all shareholders of record as of December 10, 2021. We believe that given our strong financial results year-to-date, the special dividend is intended to immediately return value to our shareholders.

Off-Balance Sheet Arrangements

None.

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Inflation

~~We do not believe that~~The impact of inflation ~~has had a material~~on the Company's business operations was seen throughout fiscal 2021 and began to have an adverse impact on our business ~~or operating results during~~in the ~~periods presented, however, we do expect inflation pressures to impact the remainder~~second quarter of fiscal ~~2021.~~2022, mainly in freight and other supply chain related costs. Freight expenses have continued to negatively impact our gross margin, with approximately $3.8 million in incremental freight expenses in the fiscal 2022 second quarter alone. However, we continue to take mitigating actions, such as select strategic price increases on highly sought-after products, accelerated purchases of inventory, and leveraging occupancy and distribution costs. We expect the inflationary pressures experienced in the second quarter of fiscal 2022 to continue into the rest of fiscal 2022. We continue to monitor the impact of inflation on our business operations on an ongoing basis and may need to adjust our prices further to mitigate the impacts of changes to the rate of inflation during 2022 or in future years. Future volatility of general price inflation and the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead could adversely affect our financial results. Inflationary pressures may be exacerbated by higher transportation costs due to war and other geopolitical conflicts, such as the current China-Taiwan conflict. We cannot provide an estimate or range of impact that such ~~cost~~ inflations may have on our future results of operations. However, if we are unable to recover the impact of these costs through price increases to our guests, or if consumer spending decreases as a result of inflation, our business, results of operations, financial condition and cash flows may be adversely affected. In addition, ongoing inflation in product costs may result in lower gross margin rates due to the need to maintain higher inventory reserves.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the appropriate application of certain accounting policies, which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the financial statements.

We believe our application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates, including those related to long-lived assets, leases, revenue recognition and income taxes, are reevaluated on an ongoing basis, and adjustments are made when facts and circumstances dictate a change.

Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates. Our critical accounting policies and estimates are discussed in and should be read in conjunction with our Annual Report on Form 10-K for the year ended January 29, 2022 as filed with the ~~Securities and Exchange Commission (SEC)~~SEC on April ~~15, 2021,~~14, 2022, which includes audited consolidated financial statements for our ~~2020~~2021 and ~~2019~~2020 fiscal years. There have been no material changes to the critical accounting estimates disclosed in the ~~2020~~2021 Form 10-K.

Recent Accounting Pronouncements

See Note 1 to the Condensed Consolidated Financial Statements — Basis of Presentation — Recent Accounting Pronouncements – Adopted in the Current Year as disclosed in our Annual Report on Form 10-K for the year ended January ~~30, 2021~~29, 2022 as filed with the SEC on April ~~15, 2021.~~14, 2022.

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 January ~~30, 2021~~29, 2022 as filed with the SEC on April ~~15, 2021.~~14, 2022.

2826

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Item 4. Controls and Procedures.

Our management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including our certifying officers, as appropriate to allow timely decisions regarding required disclosure. Based on the foregoing evaluation, our management, including the President and Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of ~~October~~July 30, ~~2021,~~2022, 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 to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. There have been no changes in our internal control over financial reporting during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2927

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PART II – OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes to our risk factors as disclosed in our Annual Report on Form 10-K for the year ended January ~~30, 2021~~29, 2022 as filed with the SEC on April ~~15, 2021.~~14, 2022.

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 (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
August 1, 2021 - August 28, 2021
- $ - - $ -
August 29, 2021 - October 2, 2021
- - - -
October 3, 2021 - October 30, 2021
43,969 16.33 - -
Total
43,969 $ 16.33 - $ -

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
May 1, 2022 - May 28, 2022		98,999	$	16.53		98,999	$	10,882,290
May 29, 2022 - July 2, 2022		-		-		-		10,882,290
July 3, 2022 - July 30, 2022		601,721		15.95		601,721		1,287,745
Total		700,720	$	16.03		700,720	$	1,287,745

(1)

~~Represents~~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.

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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)

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

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Management contract or compensatory plan or arrangement.

3129

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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: ~~December 9, 2021~~September 8, 2022

	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)

3230

		*October 30,*			*January 30,*			*October 31,*				*July 30,*			*January 29,*			*July 31,*
		*2021*			*2021*			*2020*				*2022*			*2022*			*2021*
		(Unaudited)						(Unaudited)				(Unaudited)						(Unaudited)
*ASSETS*	*ASSETS*										*ASSETS*
Current assets:
Cash and cash equivalents		$	48,501		$	34,840		$	25,809			$	14,437		$	32,845		$	51,136
Inventories, net			61,912			46,947			51,501				87,722			71,809			47,342
Receivables, net			12,788			8,295			7,950				15,337			11,701			8,648
Prepaid expenses and other current assets			11,186			10,111			5,427				12,910			13,643			8,841
Total current assets			134,387			100,193			90,687				130,406			129,998			115,967

Operating lease right-of-use asset			86,888			104,825			109,757				76,560			77,671			93,087
Property and equipment, net			48,221			52,973			55,421				46,689			48,966			48,161
Deferred Tax Assets													7,596			7,613			-
Other assets, net			2,502			3,381			3,572				2,184			2,076			7,060
Total Assets		$	271,998		$	261,372		$	259,437			$	263,435		$	266,324		$	264,275

*LIABILITIES AND STOCKHOLDERS' EQUITY*	*LIABILITIES AND STOCKHOLDERS' EQUITY*										*LIABILITIES AND STOCKHOLDERS' EQUITY*
Current liabilities:
Accounts payable		$	25,830		$	17,901		$	14,527			$	29,086		$	21,849		$	16,028
Accrued expenses			20,378			17,551			19,856				22,873			25,543			20,972
Operating lease liability short term			26,815			32,402			35,489				25,244			25,245			28,019
Gift cards and customer deposits			18,197			19,029			19,070				17,969			20,937			18,096
Deferred revenue and other			2,690			2,445			2,364				4,416			3,808			2,723
Total current liabilities			93,910			89,328			91,306				99,588			97,382			85,838

Operating lease liability long term			82,700			101,462			107,653				68,291			73,307			89,883
Deferred franchise revenue			791			920			866
Other liabilities			1,533			2,354			2,913
Other long-term liabilities													1,692			1,952			3,419

Stockholders' equity:
Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares issued or outstanding at October 30, 2021, January 30, 2021 and October 31, 2020			0			0			0
Common stock, par value $0.01, Shares authorized: 50,000,000; Issued and outstanding: 16,297,362, 15,930,958 and 15,960,262 shares, respectively			163			159			160
Preferred stock, par value $0.01, Shares authorized: 15,000,000; No shares issued or outstanding at July 30, 2022, January 29, 2022 and July 31, 2021													-			-			-
Common stock, par value $0.01, Shares authorized: 50,000,000; Issued and outstanding: 15,032,708, 16,146,332, and 16,033,134 shares, respectively													150			162			160
Additional paid-in capital			75,316			72,822			72,344				69,409			75,490			73,397
Accumulated other comprehensive loss			(12,495	)		(12,615	)		(12,277	)			(12,385	)		(12,470	)		(12,579	)
Retained earnings/(deficit)			30,080			6,942			(3,528	)
Retained earnings													36,690			30,501			24,157
Total stockholders' equity			93,064			67,308			56,699				93,864			93,683			85,135
Total Liabilities and Stockholders' Equity		$	271,998		$	261,372		$	259,437			$	263,435		$	266,324		$	264,275

	*Thirteen weeks ended*					*Thirty-nine weeks ended*					*Thirteen weeks ended*					*Twenty-six weeks ended*
	*October 30,*			*October 31,*		*October 30,*		*October 31,*			*July 30,*		*July 31,*			*July 30,*		*July 31,*
	*2021*			*2020*		*2021*		*2020*			*2022*		*2021*			*2022*		*2021*
Revenues:
Net retail sales	$	91,551		$	72,368	$	272,052	$	157,354		$	95,882	$	91,289		$	208,772	$	180,501
Commercial revenue		2,749			1,858		7,804		3,056			4,054		2,946			8,340		5,055
International franchising		839			447		1,704		1,240			749		493			1,235		865
Total revenues		95,139			74,673		281,560		161,650			100,685		94,728			218,347		186,421

Costs and expenses:
Cost of merchandise sold - retail		43,918			38,715		128,688		102,300			48,387		42,677			101,987		84,770
Store asset impairment		0			162		0		7,044
Cost of merchandise sold - commercial		1,060			782		3,250		1,309			1,949		1,286			3,895		2,190
Cost of merchandise sold - international franchising		547			251		1,180		636			437		365			725		633
Total cost of merchandise sold		45,525			39,910		133,118		111,289			50,773		44,328			106,607		87,593
Consolidated gross profit		49,614			34,763		148,442		50,361			49,912		50,400			111,740		98,828
Selling, general and administrative expense		41,709			33,091		117,870		81,332			42,264		40,919			85,884		76,161
Interest (income) expense, net		(2	)		2		11		6
Income (loss) before income taxes		7,907			1,670		30,561		(30,977	)
Interest expense, net												3		8			22		13
Income before income taxes												7,645		9,473			25,834		22,654
Income tax expense		1,984			10		7,423		2,476			1,815		2,638			5,814		5,439
Net income (loss)	$	5,923		$	1,660	$	23,138	$	(33,453	)
Net income											$	5,830	$	6,835		$	20,020	$	17,215

Foreign currency translation adjustment		84			26		120		(198	)		67		(47	)		85		36
Comprehensive income (loss)	$	6,007		$	1,686	$	23,258	$	(33,651	)
Comprehensive income											$	5,897	$	6,788		$	20,105	$	17,251

Income (loss) per common share:
Income per common share:
Basic	$	0.38		$	0.11	$	1.51	$	(2.24	)	$	0.38	$	0.44		$	1.30	$	1.13
Diluted	$	0.36		$	0.11	$	1.44	$	(2.24	)	$	0.38	$	0.42		$	1.27	$	1.08

Shares used in computing common per share amounts:
Basic		15,578,389			14,999,786		15,345,420		14,923,304			15,274,770		15,398,406			15,375,250		15,230,215
Diluted		16,236,901			15,220,432		16,042,947		14,923,304			15,536,308		16,111,587			15,749,058		15,958,520

	*Thirty-nine weeks ended*						*Twenty-six weeks ended*
	*October 30,*			*October 31,*			*July 30,*			*July 31,*
	*2021*			*2020*			*2022*			*2021*

Cash flows provided by (used in) operating activities:
Net income (loss)	$	23,138		$	(33,453	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Cash flows provided by operating activities:
Net income							$	20,020		$	17,215
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,152			9,905			6,276			6,120
Share-based and performance-based stock compensation		2,097			1,250			1,292			1,526
Impairment of right-of-use assets and fixed assets		0			7,044
Deferred taxes		0			3,388
Provision for doubtful accounts		150			577
Provision/adjustments for doubtful accounts								(81	)		113
Loss on disposal of property and equipment		38			162			92			28
Deferred Taxes								16			-
Change in assets and liabilities:
Inventories, net		(14,992	)		1,728			(16,929	)		(263	)
Receivables, net		(4,627	)		2,944			(3,754	)		(427	)
Prepaid expenses and other assets		215			1,667			(185	)		(1,919	)
Accounts payable and accrued expenses		9,209			4,075			5,804			1,108
Operating leases		(6,547	)		5,449			(3,565	)		(4,429	)
Gift cards and customer deposits		(841	)		(1,128	)		(2,926	)		(946	)
Deferred revenue		243			(540	)		630			268
Net cash provided by operating activities		17,235			3,068			6,690			18,394
Cash flows used in investing activities:
Purchases of property and equipment		(4,644	)		(4,029	)		(4,064	)		(1,553	)
Net cash used in investing activities		(4,644	)		(4,029	)		(4,064	)		(1,553	)
Cash flows provided by (used in) financing activities:
Proceeds from the exercise of employee stock options, net of tax withholding obligation		924			(114	)
Net cash provided by (used in) financing activities		924			(114	)
Cash flows used in financing activities:
Issuance of common stock for employee equity awards, net of tax								(1,865	)		(625	)
Cash dividends paid on vested participating securities								(292	)		-
Purchases of Company’s common stock								(19,383	)		-
Net cash used in financing activities								(21,540	)		(625	)
Effect of exchange rates on cash		146			143			506			80
Increase (decrease) in cash, cash equivalents, and restricted cash		13,661			(932	)		(18,408	)		16,296
Cash, cash equivalents and restricted cash, beginning of period		34,840			28,395			32,845			34,840
Cash, cash equivalents and restricted cash, end of period	$	48,501		$	27,463		$	14,437		$	51,136

Supplemental disclosure of cash flow information:
Cash and cash equivalents	$	46,804		$	25,809		$	13,989		$	49,426
Restricted cash from long-term deposits	$	1,697		$	1,654		$	448		$	1,710
Total cash, cash equivalents and restricted cash	$	48,501		$	27,463		$	14,437		$	51,136

Net cash paid (received) during the period for income taxes	$	9,236		$	(135	)
Net cash paid during the period for income taxes							$	7,396		$	3,502

	*Thirteen weeks ended*				*Thirty-nine weeks ended*				*Thirteen weeks ended*				*Twenty-six weeks ended*
	*October 30, 2021*		*October 31, 2020*		*October 30, 2021*		*October 31, 2020*		*July 30, 2022*		*July 31, 2021*		*July 30, 2022*		*July 31, 2021*

Operating lease costs		8,537		8,880		25,849		28,464		8,625		8,732		16,969		17,312
Variable lease costs		1,596		1,000		3,762		1,422		2,060		1,288		4,190		2,167
Short term lease costs		16		17		46		111		8		16		27		30
Total Operating Lease costs	$	10,149	$	9,897	$	29,657	$	29,997	$	10,693	$	10,036	$	21,186	$	19,509

Operating Leases
2021		7,635
2022		32,407			15,433
2023		26,384			30,299
2024		21,980			22,592
2025		16,379			15,618
2026					8,973
Thereafter		21,111			12,939
Total minimum lease payments		125,896			105,854
Less: amount of lease payments representing interest		(16,381	)		(12,319	)
Present value of future minimum lease payments		109,515			93,535
Less: current obligations under leases		(26,815	)		(25,244	)
Long-term lease obligations	$	82,700		$	68,291

		Page
Part I Financial Information

Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	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

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1917

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2826

Item 4.	Controls and Procedures	2927

Part II Other Information

Item 1A.	Risk Factors	3028

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3028

Item 6.	Exhibits	3129

Signatures		3230

	(1)	Prepaid occupancy consists of prepaid expenses related to variable non-lease components.
	(2)	Prepaid taxes consist of prepaid federal and state income ~~tax and other taxes.~~tax.
	(3)	Other consists primarily of prepaid expense related to IT maintenance contracts and software as a service.

	*Options*					*Options*
	*Shares*			*Weighted Average Exercise Price*		*Shares*			*Weighted Average Exercise Price*
Outstanding, January 30, 2021		805,701		$	9.96
Outstanding, January 29, 2022							318,569		$	13.23
Granted		0			0		-			-
Exercised		(356,289	)		7.20		(27,120	)		11.57
Forfeited		0			0		-			-
Canceled or expired		(26,711	)		8.13		-			-
Outstanding, October 30, 2021		422,701		$	12.40
Outstanding, July 30, 2022							291,449		$	13.39

	*Time-Based Restricted Stock*					*Performance-Based Restricted Stock*					*Time-Based Restricted Stock*					*Performance-Based Restricted Stock*
	*Shares*			*Weighted Average Grant Date Fair Value*		*Shares*			*Weighted Average Grant Date Fair Value*		*Shares*			*Weighted Average Grant Date Fair Value*		*Shares*			*Weighted Average Grant Date Fair Value*
Outstanding, January 30, 2021		931,172		$	3.26		336,441		$	5.03
Outstanding, January 29, 2022												463,580		$	5.43		306,280		$	3.56
Granted		143,755			9.46		53,095			8.24		82,154			12.48		84,579			18.03
Vested		(606,443	)		3.14		(32,521	)		8.60		(257,751	)		5.78		(88,721	)		5.61
Forfeited		(9,850	)		6.35		0			0		-			-		-			-
Canceled or expired		0			0		(50,735	)		8.60		-			-		(7,090	)		5.61
Outstanding, October 30, 2021		458,634		$	5.30		306,280		$	3.56
Outstanding, July 30, 2022												287,982		$	7.12		295,048		$	8.13

	*Performance Shares*

Unearned shares subject to performance-based restrictions at target:
~~2019 - 2021 consolidated pre-tax income growth objectives~~		~~95,811~~
2020 - 2022 consolidated liquidity and strategic performance objectives		89,168
2020 - 2022 consolidated earnings before interest and taxes (EBIT) objectives		68,206
2021 - 2023 consolidated, cumulative earnings before interest, taxes, depreciation and amortization (EBITDA) objectives		39,821
2021 - 2023 consolidated revenue growth objectives		13,274
~~Performance shares outstanding, October 30, 2021~~2022 - 2024 consolidated, earnings before interest, taxes, depreciation and amortization (EBITDA) growth objectives		~~306,280~~63,435
2022 - 2024 consolidated revenue growth objectives		21,145
Performance shares outstanding, July 30, 2022		295,048

	*For the thirteen weeks ended October 30, 2021*														*For the thirteen weeks ended October 31, 2020*													*For the thirteen weeks ended July 30, 2022*															*For the thirteen weeks ended July 31, 2021*

	*Common*									*Retained*					*Common*								*Retained*					*Common*									*Retained*						*Common*								*Retained*
	*stock*			*APIC (1)*			*AOCI (2)*			*earnings*		*Total*			*stock*		*APIC (1)*			*AOCI (2)*			*earnings/(deficit)*			*Total*		*stock*			*APIC (1)*			*AOCI (2)*			*earnings*			*Total*			*stock*			*APIC (1)*		*AOCI (2)*			*earnings*		*Total*
Balance, beginning	$	160		$	73,397		$	(12,579	)	$	24,157	$	85,135		$	156	$	71,906		$	(12,303	)	$	(5,188	)	$	54,571	$	157		$	71,962		$	(12,452	)	$	38,872		$	98,540		$	163		$	73,024	$	(12,532	)	$	17,322	$	77,977
Shares issued under employee stock plans		3			2,265			0			0		2,268			4		(4	)		0			0			0					272									272													-
Stock-based compensation		0			372			0			0		372			0		441			0			0			441					379									379						370							370
Shares withheld in lieu of tax withholdings		(1	)		(718	)		0			0		(719	)		0		0			0			0			0
Other		1			0			0			0		1			0		1			0			0			1					4						19			23			(3	)		3							-
Share Repurchase																													(7	)		(3,208	)					(8,030	)		(11,245	)												-
Other comprehensive income		0			0			84			0		84			0		0			26			0			26								67						67								(47	)				(47	)
Net income		0			0			0			5,923		5,923			0		0			0			1,660			1,660											5,829			5,829											6,835		6,835
Balance, ending	$	163		$	75,316		$	(12,495	)	$	30,080	$	93,064		$	160	$	72,344		$	(12,277	)	$	(3,528	)	$	56,699	$	150		$	69,409		$	(12,385	)	$	36,690		$	93,864		$	160		$	73,397	$	(12,579	)	$	24,157	$	85,135

	*For the thirty-nine weeks ended October 30, 2021*														*For the thirty-nine weeks ended October 31, 2020*															*For the twenty-six weeks ended July 30, 2022*															*For the twenty-six weeks ended July 31, 2021*

	*Common*									*Retained*					*Common*									*Retained*						*Common*									*Retained*						*Common*									*Retained*
	*stock*			*APIC (1)*			*AOCI (2)*			*earnings*		*Total*			*stock*			*APIC (1)*			*AOCI (2)*			*earnings/(deficit)*			*Total*			*stock*			*APIC (1)*			*AOCI (2)*			*earnings*			*Total*			*stock*			*APIC (1)*			*AOCI (2)*			*earnings/(deficit)*		*Total*
Balance, beginning	$	159		$	72,822		$	(12,615	)	$	6,942	$	67,308		$	152		$	70,633		$	(12,079	)	$	29,925		$	88,631		$	162		$	75,490		$	(12,470	)	$	30,501		$	93,683		$	159		$	72,822		$	(12,615	)	$	6,942	$	67,308
Shares issued under employee stock plans		8			2,838			0			0		2,846			8			491			0			0			499			2			810									812			5			574								579
Stock-based compensation		0			1,293			0			0		1,293			0			1,334			0			0			1,334						807									807						921								921
Shares withheld in lieu of tax withholdings		(2	)		(1,640	)		0			0		(1,642	)		(1	)		(114	)		0			0			(115	)		(1	)		(2,178	)								(2,179	)		(1	)		(922	)							(923	)
Other		(2	)		3			0			0		1			1			0			0			0			1												19			19			(3	)		2								(1.00	)
Share Repurchase																															(12	)		(5,521	)					(13,850	)		(19,383	)													-
Other comprehensive income (loss)	��	0			0			120			0		120			0			0			(198	)		0			(198	)								85						85									36					36
Net income (loss)		0			0			0			23,138		23,138			0			0			0			(33,453	)		(33,453	)											20,020			20,020												17,215		17,215
Balance, ending	$	163		$	75,316		$	(12,495	)	$	30,080	$	93,064		$	160		$	72,344		$	(12,277	)	$	(3,528	)	$	56,699		$	150		$	69,409		$	(12,385	)	$	36,690		$	93,864		$	160		$	73,397		$	(12,579	)	$	24,157	$	85,135

	*Direct-to-*					*International*						*Direct-to-*				*International*
	*Consumer*			*Commercial*		*Franchising*			*Total*			*Consumer*		*Commercial*		*Franchising*			*Total*
Thirteen weeks ended October 30, 2021
Thirteen weeks ended July 30, 2022
Net sales to external customers	$	91,551		$	2,749	$	839		$	95,139		$	95,882	$	4,054	$	749		$	100,685
Income before income taxes		7,011			561		335			7,907		$	5,410	$	1,707	$	528			7,645
Capital expenditures		3,091			0		0			3,091		$	2,995	$	-	$	-			2,995
Depreciation and amortization		3,021			11		0			3,032		$	2,932	$	94	$	-			3,026
Thirteen weeks ended October 31, 2020
Thirteen weeks ended July 31, 2021
Net sales to external customers	$	72,368		$	1,858	$	447		$	74,673		$	91,289	$	2,946	$	493		$	94,728
Income before income taxes		713			803		154			1,670		$	8,032	$	1,348	$	93		$	9,473
Capital expenditures		651			0		0			651		$	1,062	$	-	$	-		$	1,062
Depreciation and amortization		3,186			8		0			3,194		$	2,986	$	7	$	-		$	2,993

Thirty-nine weeks ended October 30, 2021
Twenty-six weeks ended July 30, 2022
Net sales to external customers	$	272,052		$	7,804	$	1,704		$	281,560		$	208,772	$	8,340	$	1,235		$	218,347
Income before income taxes		27,524			2,727		310			30,561			21,403		3,696		735			25,834
Capital expenditures		4,644			0		0			4,644			4,064		-		-			4,064
Depreciation and amortization		9,129			23		0			9,152			5,964		312		-			6,276
Thirty-nine weeks ended October 31, 2020
Twenty-six weeks ended July 31, 2021
Net sales to external customers	$	157,354		$	3,056	$	1,240		$	161,650		$	180,501	$	5,055	$	865		$	186,421
(Loss) Income before income taxes		(31,802	)		997		(172	)		(30,977	)
Income (loss) before income taxes													20,513		2,166		(25	)		22,654
Capital expenditures		4,029			0		0			4,029			1,553		-		-			1,553
Depreciation and amortization		9,882			23		0			9,905			6,108		12		-			6,120
Total Assets as of:
October 30, 2021	$	254,697		$	6,095	$	11,206		$	271,998
January 30, 2021		246,341			6,353		8,678			261,372
October 31, 2020		244,030			7,088		8,319			259,437
July 30, 2022												$	258,719	$	3,836	$	880		$	263,435
January 29, 2022													260,526		3,310		2,488			266,324
July 31, 2021													255,700		7,165		1,410			264,275

	*North*								*North*
	*America (1)*		*Europe (2)*		*Other (3)*		*Total*		*America (1)*		*Europe (2)*		*Other (3)*		*Total*
Thirteen weeks ended October 30, 2021
Thirteen weeks ended July 30, 2022
Net sales to external customers	$	79,576	$	14,753	$	810	$	95,139	$	89,017	$	10,908	$	760	$	100,685
Thirteen weeks ended October 31, 2020
Thirteen weeks ended July 31, 2021
Net sales to external customers	$	62,768	$	11,320	$	585	$	74,673	$	82,179	$	12,095	$	454	$	94,728

Thirty-nine weeks ended October 30, 2021
Twenty-six weeks ended July 30, 2022
Net sales to external customers	$	247,508	$	32,257	$	1,795	$	281,560	$	192,191	$	24,903	$	1,253	$	218,347
Property and equipment, net		44,874		3,347		0		48,221	$	44,060	$	2,629	$	-	$	46,689
Thirty-nine weeks ended October 31, 2020
Twenty-six weeks ended July 31, 2021
Net sales to external customers	$	137,404	$	23,126	$	1,120	$	161,650	$	167,932	$	17,504	$	985	$	186,421
Property and equipment, net		51,314		4,107		0		55,421	$	44,536	$	3,625	$	-	$	48,161

	●	the COVID pandemic has had and is expected to continue to have an adverse effect on our business and results of operations through periodic factory closures and financial results have been and will continue to be negatively affected by the pandemic including the temporary closure of retail store locations or occupancy restrictions, which may be reinstated, all of which continue to fluctuate on a localized basis, presenting ongoing uncertainty relating to the anticipated duration and scope of the pandemic in areas in which we operate, as well as the restrictions imposed by federal, state, and local governments in response to the pandemic;other supply chain disruptions;
	●	any sustained decline in general global economic conditions, caused by the COVID pandemic or otherwise, could lead to disproportionately reduced consumer demand for our products, including those sold by third-party retailers, and which represent relatively discretionary spending, would cause an adverse effect on our liquidity and profitability;
	●	we rely on a few global supply chain vendors to supply substantially all of our merchandise, and significant price increases or disruption in their ability to deliver merchandise, such as was experienced due to periodic COVID-related factory closures, have impaired, and may in the future more significantly impair, our ability to source products and supply inventory to our stores and have previously caused us and in the future may cause us to carry higher levels of inventory than we have on a historical basis;
	●	we depend upon the shopping malls and tourist locations in which our corporately-managed stores and third-party retail locations are ~~situated~~located to attract ~~guests and a decline~~guests. Continued or further declines in retail consumer traffic or if such consumer traffic does not return to levels that we saw prior to the pandemic, or if such return is not sustained due to the spikes in the COVID infection rates or the emergence of new variants, such as Delta or Omicron, could adversely affect our financial performance and ~~profitability. In addition, some of~~profitability;
	●	any continuing or sustained decline in general global economic conditions, caused by the pandemic, inflation, or otherwise, could lead to disproportionately reduced discretionary consumer spending and a corresponding reduction in demand for our ~~third-party retailers may be subject to different market conditions as a result of the pandemic;~~products and have an adverse effect on our liquidity and profitability;
	●	in connection with the reopening of our stores, we have modified our interactive shopping experience in order to comply with recommended social distancing and sanitation practices. These modifications could have a negative impact on the appeal of our interactive shopping experience, reduce guest traffic to our stores, and decrease the volume of guests that may be able to enjoy our interactive shopping experience which could adversely impact our ability to operate our stores profitably;
	●	~~we may experience store closures in shopping malls and tourist locations and other impacts to our business resulting from civil disturbances;~~
	●	we believe the hands-on and interactive nature of our store and high touch service model result in guests forming an emotional connection with our brand, which in turn contributes to the success of our e-commerce platform and drives repeat customer transactions; if the revised experiences we are offering do not create or re-affirm the same guest affinity for our brand, it may adversely affect the value of our brand;
	●	birthdays and other special occasions have historically been a key driver for store traffic, and our inability to host such events due to pandemic restrictions or if our guests are not willing to hold such events at our stores may adversely affect store performance and our overall profitability;
	●	if we are unable to generate interest in and demand for our interactive retail experience and products, including being able to adjust that experience consistent with our guests' expectations as the general retail economy emerges from the restrictions imposed by the pandemic, and to otherwise identify and respond to consumer preferences in a timely manner, our sales, financial condition and profitability could be adversely affected;
	●	some of our licensed products are based on feature films with planned theatrical launches; given that the pandemic has negatively impacted theaters and delayed movie releases, the portion of our business associated with these films has been and could continue to be negatively affected;
	●	we may be unable to leverage the flexibility within our existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate term as our leases come up for renewal, and there may be other costs and risks related to a brick-and-mortar retail store model such as a lack of available retail store sites on terms acceptable to us as a result;
	●	consumer interests 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 key products and services;
	●	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;
	●	continuing inflationary pressures may increase supply chain costs, especially freight and fuel costs, and may reduce disposable income for consumers and demand for our products, therefore negatively impacting our sales and profitability;
	●	if we are unable to generate interest in and demand for our interactive retail experience and products, including being able to identify and respond to consumer preferences in a timely manner, our sales, financial condition and profitability could be adversely affected;
	●	failure to successfully execute our omnichannel strategy and the cost of our investments in e-commerce and digital technology may materially adversely affect our financial condition and profitability;
	●	we are subject to risks associated with technology and digital operations;
	●	if we are unable to renew, renegotiate or replace our store leases or enter into leases for new stores on favorable terms, or if we violate any of the terms of our current leases, our revenue and profitability could be harmed;
	●	our company-owned distribution center that services the majority of our 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 may not be able to evolve our store locations over time to align with market trends, successfully diversify our store models and formats in accordance with our strategic goals or otherwise effectively manage our overall portfolio of stores which could adversely affect our ability to grow and could significantly harm our profitability;
	●	we may not be able to operate our international corporately-managed locations profitability;
	●	we rely on a few global supply chain vendors to supply substantially all of our merchandise, and significant price increases or disruption in their ability to deliver merchandise could harm our ability to source products and supply inventory in our stores;
	●	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, tariffs and foreign currency fluctuations;

	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended						Twenty-six weeks ended
	October 30,			October 31,			October 30,			October 31,			July 30,			July 31,			July 30,			July 31,
	2021			2020			2021			2020			2022			2021			2022			2021
Revenues:
Net retail sales		96.2	%		96.9	%		96.6	%		97.3	%		95.3	%		96.4	%		95.6	%		96.8	%
Commercial revenue		2.9			2.5			2.8			1.9			4.0			3.1			3.8			2.7
International franchising		0.9			0.6			0.6			0.8			0.7			0.5			0.6			0.5
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⁾		48.0			53.5			47.3			65.0			50.5			46.7			48.9			47.0
Store asset impairment		-			0.2			-			4.5
Cost of merchandise sold - commercial ⁽¹⁾		38.6			42.1			41.6			42.8			48.1			43.7			46.7			43.3
Cost of merchandise sold - international franchising ⁽¹⁾		65.2			56.2			69.2			51.3			58.3			74.0			58.7			73.2
Total cost of merchandise sold		47.9			53.4			47.3			68.8			50.4			46.8			48.8			47.0
Consolidated gross profit		52.1			46.6			52.7			31.2			49.6			53.2			51.2			53.0
Selling, general and administrative		43.8			44.3			41.9			50.3			42.0			43.2			39.3			40.9
Interest expense, net		(0.0	)		0.0			0.0			0.0			0.0			0.0			0.0			0.0
Income (loss) before income taxes		8.3			2.2			10.9			(19.2	)
Income before income taxes														7.6			10.0			11.8			12.2
Income tax expense		2.1			0.0			2.6			1.5			1.8			2.8			2.7			2.9
Net income (loss)		6.2			2.2			8.2			(20.7	)
Net income														5.8			7.2			9.2			9.2

Retail Gross Margin ⁽²⁾		52.0	%		46.5	%		52.7	%		35.0	%		49.5	%		53.3	%		51.1	%		53.0	%

	●	if we are unable to effectively manage our international franchises, attract new franchises 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 such as the GDPR or the General Data Protection Regulation, the CCPA or the California Privacy Rights Act (as adopted), the TCPA or the Telephone Consumer Protection Act, or expectations, we could be subject to liability as well as damage to our reputation;
	●	~~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 are subject to risks associated with technology and digital operations;~~
	●	we may not be able to evolve our store locations over time to align with market trends, successfully diversify our store models and formats in accordance with our strategic goals or otherwise effectively manage our overall portfolio of stores which could adversely affect our ability to grow and could significantly harm our profitability;
	●	our company-owned distribution center which services the majority of our stores in North America and our third-party distribution center providers used in the western United States and Europe may experience disruptions in their ability to support our stores or may operate inefficiently;
	●	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, tariffs and foreign currency fluctuations;
	●	if we are unable to effectively manage our international franchises, attract new franchises 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 may not be able to operate our international corporately-managed locations profitably;~~
	●	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 which could result in the diminution in value of our trademarks and other important intellectual property;
	●	we may suffer negative publicity or be sued if the manufacturers of our 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 suffer negative publicity or be sued if the manufacturers of our merchandise violate labor laws or engage in practices that consumers believe are unethical;
	●	~~our profitability could be adversely affected by fluctuations in petroleum products prices;~~
	●	~~our business may be adversely impacted at any time by a significant variety of competitive threats;~~
	●	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 quality standards or fail to achieve our sales expectations;
	●	fluctuations in our operating results could reduce our cash flow, or trigger restrictions under our credit agreement, and we may be ~~unsuccessful~~unable to repurchase shares at all or at the times or in ~~engaging in various strategic transactions, which~~the amounts we desire, or the results of our share repurchase program may ~~negatively affect our financial condition and profitability;~~not be as beneficial as we would like;
	●	fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline;
	●	the market price of our common stock is subject to volatility, which could ~~in turn~~ attract the interest of activist shareholders; ~~and~~
	●	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.~~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.

	•	Direct-to-Consumer (“DTC”) – Corporately-managed 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 development fees and the sales from products and fixtures from other international operations under franchise agreements.

(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 represents net retail sales less cost of merchandise sold - retail; retail gross margin percentage represents retail gross margin divided by net retail sales.