Cautionary Notice Regarding Forward-Looking Statements

? 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 other supply chain disruptions;

? we depend upon the shopping malls and tourist locations in which our

corporately-managed stores and third-party retail locations are located to

attract guests. Continued or further declines in retail consumer traffic could

adversely affect our financial performance and 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 products and have an adverse effect on our

? 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

? our business may be adversely impacted at any time by a variety of significant

? 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

? 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

? we may not be able to operate our international corporately-managed locations

? 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

? 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

? 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

? 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 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

? 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 unable to repurchase

shares at all or at the times or in the amounts we desire, or the results of

our share repurchase program may 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

attract the interest of activist shareholders;

? 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

? 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

? we may be unsuccessful in acquiring businesses or engaging in other strategic

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

• Direct-to-Consumer ("DTC") - Corporately-managed retail stores located in the

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

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

• Further acceleration of a broad-reaching and comprehensive digital

transformation including content and entertainment initiatives.We expect to

more effectively use our expanded digital capabilities and platforms to inform

and drive marketing and content campaigns and deliver personalized experiences

and sales messaging. We also plan to expand our addressable market by reaching

beyond the core kid base and continue to acquire new tween, teen, and adult

consumers by offering unique affinity offerings and expanding purchase

occasions. We are in the process of updating our website in the third quarter

of fiscal 2022 with a reimagined online guest experience with a goal of driving

additional digital demand. We expect to modernize the site, improve efficiency,

and optimize organic traffic through leading SEO, or search engine

optimization, practices, in order to improve interfaces across all areas of the

site including gifting, affinity and the Bear Builder 3D Workshop as well as

improve conversion at checkout. In addition, we plan to continue to utilize

digital media, content and entertainment as marketing and brand-building tools

to engage consumers and create value. Although our first half e-commerce sales

were down from the first half of 2021, the results are up 180% compared to the

first half of fiscal 2019, which was prior to the implementation of key digital

initiatives. The year-over-year decrease in e-commerce sales were impacted by a

heavier mix of e-commerce sales relative to brick-and-mortar store sales due to

the ongoing impact of the pandemic in 2021 as well as the strong launch of a

• Continuing to leverage our expanded omnichannel capabilities while further

evolving retail experiences and purchase occasions. As of September 1, 2022, 12

new Build-A-Bear Workshop retail locations have been opened demonstrating the

progress we are making to reach our goal of opening approximately 20 new

locations through a combination of corporately-managed and third-party retail

this fiscal year. We expect to finish fiscal 2022 with a net increase in the

number of stores in North America inclusive of third-party retail sites and to

have fewer locations in Europe. Combined across geographies and business

models, we plan to have more total locations at the end of this fiscal year

compared to the end of 2021. We have made a concerted effort to shift to

non-traditional locations including family-centric tourist sites and now have

approximately 35% of total retail locations in non-traditional settings. As

consumers have embraced a return to physical and in-person experiences and

travel, in general, key metrics in our non-traditional locations have continued

to outpace traditional retail locations. We also continue to develop innovative

experiences to expand our brand reach. This includes Build-A-Bear vending

machines, also known as ATMs or automatic teddy machines. We expect to have

approximately 10 machines by the end of this year with more than half of them

in airports through our relationship with Hudson Group, a leader in travel

retail throughout North America. In addition, 2022 marks the 25th anniversary

since Build-A-Bear Workshop was founded and we plan to capitalize on the

occasion to create interest, leverage nostalgia and drive incremental

• Optimizing our solid financial position including a strong balance sheet to

support our business and make strategic investments designed to drive further

growth. We plan to maintain disciplined expense management particularly in

light of recent inflationary pressures, wage increases and supply chain

challenges. We are also focused on ongoing lease negotiations as we continue to

evolve our real estate portfolio with new locations, formats and business

models. In addition, we expect to continue to strategically manage our capital

to support key initiatives and innovative developments designed to deliver

long-term profitable growth while returning value to shareholders through

actions such as the recent completion of our previous buyback program, and with

plans to buyback additional shares through a newly-authorized repurchase

program announced in August 2022, which demonstrates the confidence our Board

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:

© Edgar Online, source Glimpses