Build-A-Bear Workshop, Inc. Reports Increase in Total Revenues and Delivers a $9.4 Million Improvement in Pre-Tax Profit With Third Quarter Fiscal 2020 Results

Third Quarter Results

• Total revenues increased 6.1% to $74.7 million compared to the fiscal 2019 third quarter

• Gross profit margin expanded 720 basis points compared to the fiscal 2019 third quarter

• Delivered pre-tax income of $1.7 million compared to a pre-tax loss of $7.7 million in the fiscal 2019 third quarter

• Ended the quarter with $25.8 million in cash and equivalents, an increase of $19.6 million compared to the fiscal 2019 third quarter with no borrowings on the Company’s asset-based credit facility

ST. LOUIS - (BUSINESS WIRE) - December 03, 2020 - Build-A-Bear Workshop, Inc. (NYSE:BBW) today reported results for the third quarter and 39 weeks ended October 31, 2020.

The Company noted that the disciplined execution of its strategy, inclusive of the acceleration of its digital transformation initiatives, drove an increase in total revenues, expansion in gross profit margin and growth in pre-tax income for the fiscal 2020 third quarter, as compared to the fiscal 2019 third quarter. The Company achieved these results even as the COVID-19 pandemic continued to negatively impact its retail store operations inclusive of a significant decline in traffic, a 7% reduction in store operating days due to temporary store closures and a 25% reduction in operating hours during the third quarter.

In the fiscal 2020 third quarter (13 weeks ended October 31, 2020 compared to the 13 weeks ended November 2, 2019):

• Total revenues were $74.7 million compared to $70.4 million in the fiscal 2019 third quarter, reflecting an 8.7% increase in net retail sales primarily driven by a 167% increase in e-commerce demand (orders generated online to be fulfilled from either the Company’s warehouse or its stores). This was partially offset by a $1.5 million decrease in commercial and international franchise revenues;

• Gross profit margin expanded to 46.6%, a 720-basis point improvement compared to the fiscal 2019 third quarter;

• Selling, general and administrative expenses (“SG&A”) were $33.1 million or 44.3% of total revenues, a 600-basis point improvement compared to the fiscal 2019 third quarter;

• Pre-tax income increased $9.4 million to $1.7 million compared to a pre-tax loss of $7.7 million in the fiscal 2019 third quarter; and

• Earnings before interest and taxes (“EBIT”) were $1.7 million, a $9.4 million improvement from the fiscal 2019 third quarter.

Sharon Price John, Build-A-Bear Workshop President and Chief Executive Officer, commented, “Fueled by consumer affinity for our brand, disciplined execution, and acceleration of our strategic digital transformation, the third quarter's profitable results reflected improvements across a number of key financial metrics. We delivered an increase in total revenues including continued triple-digit e-commerce growth, expansion in gross profit margin and a reduction in expenses. And, while we are pleased to have sustained this positive momentum thus far in our fourth quarter, we remain appropriately cautious given the ongoing uncertainty of the pandemic and its potential impact.

“During this period of rapid change, we have relied on the experience and agility of our management team and organization to quickly adjust and pivot as circumstances evolve. Igniting the emotional connection that Build-A-Bear has with multi-generational consumers is a critical foundation as we focus on accelerating the execution of our stated strategy with the goal to drive profitable growth through the monetization of our brand equity beyond traditional retail. Specifically, we have made great strides with initiatives driving our digital transformation ranging from e-commerce to marketing while having a long runway of continued opportunities including new, brand-enhancing, entertainment plans.

Even in these uncertain times, with the majority of the corporate headquarters continuing to work remotely, we have meaningfully evolved the company, favorably re-negotiated the vast majority of store leases, maintained a solid balance sheet with no borrowings on our credit facility and secured the liquidity required to support our business. At the same time, we have been able to enhance our infrastructure in order to further leverage the power of the Build-A-Bear brand through the diversification of profitable revenue streams with the goal of delivering long-term stakeholder value,” concluded Ms. John.

Additional Highlights

Additional Third Quarter 2020 Highlights (13 weeks ended October 31, 2020 compared to the 13 weeks ended November 2, 2019):

• Net retail sales were $72.4 million compared to $66.6 million in the fiscal 2019 third quarter;

• Income tax expense was $10,000, compared to an income tax benefit of $1.8 million in the fiscal 2019 third quarter; and

• Net income was $1.7 million, or $0.11 per diluted share, compared to a net loss of $5.9 million, or $0.40 per share, in the fiscal 2019 third quarter.

Store Activity: As of October 31, 2020, the Company had 358 corporately-managed stores. The Company noted that in the third quarter, its retail store operations were negatively impacted by COVID-related circumstances with a 7% reduction in store operating days due to temporary store closures and a 25% reduction in operating hours compared to the prior year’s period. Following the end of the quarter, the Company temporarily closed substantially all of its locations in the United Kingdom and Ireland complying with COVID-19 governmental mandates.

The vast majority of these locations reopened on December 2, 2020 as restrictions were eased.

Separately, locations associated with the Company’s third-party retail model with relationships that include Carnival Cruise Lines, Great Wolf Lodge Resorts, Landry’s and Beaches Family Resorts as well as international franchise locations, were either closed or operated under restrictions due to COVID-19 for a portion or all of the third quarter.

Balance Sheet: At quarter end, cash and cash equivalents were $25.8 million, an increase of $19.6 million compared to the end of the fiscal 2019 third quarter driven by improvement in the Company’s profitability.

With the finalization of the renegotiation of store leases which resulted in a reduction in rents, payment deferrals and abatements, the Company noted that it is now current on substantially all of its rent payments. Total inventory at quarter-end was $51.5 million a decline of $14.

7 million, or 22.2%, compared to the end of the fiscal 2019 third quarter. The Company noted that it is comfortable with the quality and composition of its inventory at quarter-end.

In the fiscal 2020 third quarter, capital expenditures were $0.7 million reflecting disciplined fiscal oversight during the pandemic, compared to $5.1 million in the fiscal 2019 third quarter. Depreciation and amortization was $3.2 million compared to $3.6 million in the fiscal 2019 third quarter.

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 EBIT, 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 core 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 and Webcast: Build-A-Bear will host a live conference call which can be accessed at (201) 493-6780 with access code Build-A-Bear at 9 a.m. ET today. The call will be broadcast simultaneously over the internet through the Company’s investor relations website. 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 December 10, 2020. The access code is: 13713287.

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.

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.