Build-A-Bear Workshop, Inc. Reports Double-Digit Increase in Both Total Revenues and Pre-Tax Income for Fiscal 2022 and Introduces Expectations for Continued Growth in Fiscal 2023

ST. LOUIS--(BUSINESS WIRE)--March 9, 2023--Build-A-Bear Workshop, Inc. (NYSE: BBW) today reported results for the fourth quarter and fiscal year 2022 ended January 28, 2023.

Sharon Price John, Build-A-Bear Workshop President and Chief Executive Officer commented, “We are pleased to have delivered another strong quarterly performance with double-digit growth in total revenues contributing to an increase of over 30% in pre-tax profit versus the prior year’s fourth quarter. In fiscal 2022, we expanded total revenues and pre-tax income resulting in the highest annual profit in our company’s 25-year history. We believe the fundamental catalyst of our positive performance has been the on-going disciplined execution of our multi-year strategic plan which positions us to further scale our business and generate profitable growth in 2023 and beyond. We have built a cross-functional foundation designed to drive and monetize the value of our strong brand equity. We have expanded our total addressable market beyond kids, extended our brand access beyond malls and enhanced consumer engagement beyond our iconic store experience.

“With the positive momentum continuing into the first quarter of fiscal 2023, we look to our promising future with an even stronger brand, an elevated digital and organizational infrastructure, a proven multi-dimensional strategy and a motivated seasoned team committed to continue to drive shareholder value,” concluded Ms. John.

Fourth Quarter 2022 Highlights (13 weeks ended January 28, 2023 compared to the 13 weeks ended January 29, 2022):

• Total revenues were $145.1 million, an increase of 11.6% compared to $130.0 million in the fiscal 2021 fourth quarter;
  • Net retail sales were $138.2 million, a 10.0% increase compared to $125.6 million in the fiscal 2021 fourth quarter;
  • Consolidated e-commerce demand (orders generated online to be fulfilled from either the Company’s warehouse or its stores) increased 0.9% compared to the fiscal 2021 fourth quarter; and
  • Commercial and international franchise revenues were $6.9 million, an increase of 60.5% compared to $4.3 million in the fiscal 2021 fourth quarter;
• Gross profit margin was 55.0%, an increase of 150 basis points from 53.5% in the fiscal 2021 fourth quarter. Gross profit margin expansion in the 2022 fourth quarter reflected increased merchandise margin primarily driven by lower freight costs versus the prior year and leverage on fixed occupancy expense;
• Selling, general and administrative (“SG&A”) expenses were $53.6 million, or 36.9% of total revenues, compared to $49.4 million, or 38.0% of total revenues, in the fiscal 2021 fourth quarter. The increase in SG&A expenses was driven by higher store payroll, incentive compensation, and marketing expenses. SG&A expenses as a percentage of total revenues improved by 110 basis points driven by favorable leverage of fixed costs due to the increase in total revenues;
• Pre-tax income increased 30.3% to $26.2 million, compared to pre-tax income of $20.1 million in the fiscal 2021 fourth quarter;
• Income tax expense was $5.7 million, an effective tax rate of 21.8% in the fiscal 2022 fourth quarter compared to an income tax benefit of $4.0 million in the fiscal 2021 fourth quarter. The income tax benefit in the fiscal 2021 fourth quarter reflected the full reversal of the Company’s tax valuation allowance in North America of $7.8 million;
• Net income decreased 14.9% to $20.5 million, or $1.39 per diluted share, compared to net income of $24.1 million, or $1.48 per diluted share, in the fiscal 2021 fourth quarter. On an adjusted basis, net income increased 20.9% to $19.1 million, or $1.30 per diluted share, compared to adjusted net income of $15.8 million, or $0.97 per diluted share, in the fiscal 2021 fourth quarter which excludes the reversal of the tax valuation allowance in North America (see reconciliation of GAAP to non-GAAP results); and
• Earnings before interest, taxes, depreciation and amortization (“EBITDA”) was $29.4 million, an increase of 26.2%, or $6.1 million, from the fiscal 2021 fourth quarter.

Fiscal Year 2022 Highlights (52 weeks ended January 28, 2023 compared to the 52 weeks ended January 29, 2022):

• Total revenues were $467.9 million, an increase of 13.7% compared to $411.5 million in fiscal 2021;
  • Consolidated net retail sales were $446.2 million, an increase of 12.2% compared to $397.7 million in fiscal 2021;
  • Consolidated e-commerce demand (orders generated online to be fulfilled from either the Company’s warehouse or its stores) decreased 7.8% compared to fiscal 2021 and, for reference, fiscal 2022 e-commerce demand showed an increase of 137.1% compared to pre-pandemic fiscal 2019. The shift in e-commerce demand in fiscal 2022 compared to fiscal 2021 reflects the trend of consumers embracing a return to in-person shopping as well as disruption from a planned website upgrade during the year;
  • Commercial and international franchise revenues were $21.8 million, an increase of 58.0% compared to $13.8 million in fiscal 2021;

• Pre-tax income increased 22.1% to $61.9 million compared to pre-tax income of $50.7 million in fiscal 2021;
• Income tax expense was $13.9 million, an effective tax rate of 22.5%, compared to income tax expense of $3.4 million in fiscal 2021. Income tax expense in fiscal 2021 reflected the full reversal of the Company’s tax valuation allowance in North America of $7.8 million;
• Net income increased 1.5% to $48.0 million, or $3.15 per diluted share, compared to net income of $47.3 million, or $2.93 per diluted share in fiscal 2021. On an adjusted basis, net income was $47.0 million, or $3.08 per diluted share, compared to adjusted net income of $38.3 million, or $2.37 per diluted share in fiscal 2021 which excludes the reversal of the tax valuation allowance in North America (see reconciliation of GAAP to non-GAAP results); and
• EBITDA was $74.4 million, an increase of 18.1%, or $11.4 million, from EBITDA of $63.0 million in fiscal 2021.

Store Activity:

As of January 28, 2023, the Company had 488 global locations through a combination of its corporately-managed, third-party retail and international franchise models, a net increase of nine locations compared to the end fiscal 2021.

This reflects 350 corporately-managed stores with four net openings as compared to the end of fiscal 2021, representing seven net store openings in North America and three net store closings in Europe.

Through the Company’s third-party retail business model, there were 70 locations at the end of fiscal 2022 with relationships that include Carnival Cruise Lines, Great Wolf Lodge Resorts, Landry’s and Beaches Family Resorts reflecting nine net openings at the end of fiscal 2022.

The Company’s international franchisees finished fiscal 2022 with 68 locations, reflecting four net closures.

Balance Sheet:

As of January 28, 2023, cash and cash equivalents totaled $42.2 million compared to $32.8 million as of January 29, 2022. The Company ended the fiscal year with no borrowings under its revolving credit facility.

Total inventory at year-end was $70.5 million, a decrease of $1.3 million from fiscal 2021 year-end. For fiscal 2022, capital expenditures totaled $13.6 million compared to $8.1 million in fiscal 2021 and depreciation and amortization was $12.5 million compared to $12.3 million in fiscal 2021.

Return of Capital to Shareholders:

During fiscal 2022, the Company utilized $24.1 million in cash to repurchase 1,533,503 shares of its common stock. As of March 9, 2023, the Company had $46.5 million available under the current $50.0 million stock repurchase program adopted on August 31, 2022.

As announced March 8, 2023, the Company’s Board of Directors declared a special cash dividend of $1.50 per share that will be paid on April 6, 2023, to all stockholders of record as of March 23, 2023, following a $1.25 per share special cash dividend declared on November 30, 2021.

Build-A-Bear Workshop President and Chief Executive Officer Sharon Price John commented, “We continue to return value to our shareholders as our company has grown and delivered record-setting profitability. This strategic use of capital including our share repurchase program and these special dividends totaling over $70 million during the past 24 months, reflect our Board of Directors’ ongoing confidence in the strategy and business outlook.”

Fiscal 2023 Outlook:

The Company is providing guidance for fiscal 2023 with expectations of delivering growth in total revenues and pre-tax income compared to fiscal 2022. While the Company notes that its fiscal 2023 is a 53-week year compared to a 52-week year in fiscal 2022, it expects to deliver growth in total revenues and pre-tax income versus the prior year exclusive of the projected benefit of the 53^rd week. For reference, the additional week in fiscal 2023, which will be reflected in the Company’s fourth quarter, is estimated to be $7 million in total revenues with approximately 35% flow-through to EBITDA.

For fiscal 2023, the Company currently expects:

• Total revenues to increase in the range of 5% to 7% compared to fiscal 2022 with growth in all three operating segments;
• Pre-tax income growth of 10% to 15% compared to fiscal 2022, surpassing the record high that the Company achieved in fiscal 2022;
• To open 20 to 30 experience locations, through a combination of third-party retail and corporately-managed business models, with the majority planned for the second half of the year;
• Capital expenditures in the range of $15 million to $20 million;
• Depreciation and amortization of approximately $13 million to $14 million; and
• Tax rate to approximate 25% excluding discrete items.

The Company’s guidance considers a variety of factors ranging from anticipated ongoing inflationary pressures to the expected benefit of reduced freight costs. Additionally, the Company noted that its outlook assumes no further material changes in the operations of its supply chain including the ability to receive and ship product on a timely basis, the macro-economic and geo-political environment, or relevant foreign currency exchange rates.

Note Regarding Non-GAAP Financial Measures

In this press release, the Company’s financial results are provided both in accordance with generally accepted accounting principles (GAAP) and using certain non-GAAP financial measures. In particular, the Company provides historic income and income per diluted share adjusted to exclude certain costs and accounting adjustments, which are non-GAAP financial measures. These results are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help identify underlying trends in the Company’s business and provide useful information to both management and investors by excluding certain items that may not be indicative of the Company’s on-going operating results. These measures should not be considered a substitute for or superior to GAAP results. These non-GAAP financial measures are defined and reconciled to the most comparable GAAP measure later in this document.

Today’s Conference Call Webcast:

Build-A-Bear Workshop will host a live internet webcast of its quarterly investor conference call at 9 a.m. ET today. The dial-in number for the live conference call is (877) 407-3982 or (201) 493-6780 for international callers. The access code is Build-A-Bear. The audio broadcast may be accessed at the Company’s investor relations website, http://IR.buildabear.com. The call is expected to conclude by 10 a.m. ET.

A replay of the conference call webcast will be available in the investor relations website for one year. A telephone replay will be available beginning at approximately noon ET today until midnight ET on March 16, 2023. The telephone replay is available by calling (844) 512-2921. The access code is: 13736006.

About Build-A-Bear

Build-A-Bear is a multi-generational global brand focused on its mission to “add a little more heart to life” appealing to a wide array of consumer groups who enjoy the personal expression in making their own “furry friends” to celebrate and commemorate life moments. Nearly 500 interactive brick-and-mortar experience locations operated through a variety of formats provide guests of all ages a hands-on entertaining experience, which often fosters a lasting and emotional brand connection. The company also offers engaging e-commerce/digital purchasing experiences on www.buildabear.com including its online “Bear-Builder” as well as the “Bear Builder 3D Workshop”. In addition, extending its brand power beyond retail, Build-A-Bear Entertainment, a subsidiary of Build-A-Bear Workshop, Inc., is dedicated to creating engaging content for kids and adults that fulfills the company’s mission, while the company also offers products at wholesale and in non-plush consumer categories via licensing agreements with leading manufacturers. Build-A-Bear Workshop, Inc. (NYSE: BBW) posted total revenues of $467.9 million in fiscal 2022. For more information, visit the Investor Relations section of buildabear.com.

Forward-Looking Statements:

This press release contains certain statements that are, or may be considered to be, “forward-looking statements” for the purpose of federal securities laws, including, but not limited to, statements that reflect our current views with respect to future events and financial performance. We generally identify these statements by words or phrases such as “may,” “might,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “predict,” “future,” “potential” or “continue,” the negative or any derivative of these terms and other comparable terminology. All of the information concerning our future liquidity, future revenues, margins and other future financial performance and results, achievement of operating of financial plans or forecasts for future periods, sources and availability of credit and liquidity, future cash flows and cash needs, success and results of strategic initiatives and other future financial performance or financial position, as well as our assumptions underlying such information, constitute forward-looking information.

These statements are based only on our current expectations and projections about future events. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by these forward-looking statements, including those factors discussed under the caption entitled “Risks Related to Our Business” and “Forward-Looking Statements” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 15, 2021 and other periodic reports filed with the SEC which are incorporated herein.

All of our forward-looking statements are as of the date of this Press Release only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or other risks and uncertainties referred to in this Press Release or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the SEC could materially and adversely affect our continuing operations and our future financial results, cash flows, available credit, prospects and liquidity. Except as required by law, the Company does not undertake to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

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