BUILD-A-BEAR WORKSHOP INC 10-Q

Item 1. Financial Statements BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share and per share data) May 4, February 3, April 29, 2024 2024 2023 (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 38,233 $ 44,327 $ 32,819 Inventories, net 64,024 63,499 66,489 Receivables, net 9,547 8,569 13,307 Prepaid expenses and other current assets 12,046 11,377 13,503 Total current assets 123,850 127,772 126,118 Operating lease right-of-use asset 72,783 73,443 73,780 Property and equipment, net 53,897 55,262 50,385 Deferred tax assets 8,672 8,682 6,642 Other assets, net 6,074 7,166 4,785 Total Assets $ 265,276 $ 272,325 $ 261,710 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 14,793 $ 16,170 $ 13,686 Accrued expenses 19,552 19,954 27,272 Operating lease liability short term 24,276 25,961 27,843 Gift cards and customer deposits 16,620 18,134 18,637 Deferred revenue and other 3,432 3,514 5,010 Total current liabilities 78,673 83,733 92,448 Operating lease liability long term 56,906 57,609 59,030 Other long-term liabilities 1,356 1,321 1,260 Stockholders' equity: Preferred stock, par value $ 0.01 , Shares authorized: 15,000,000 ; No shares issued or outstanding at May 4, 2024, February 3, 2024 and April 29, 2023 - - - Common stock, par value $ 0.01 , Shares authorized: 50,000,000 ; Issued and outstanding: 13,914,176 , 14,172,362 , and 14,938,825 shares, respectively 139 142 149 Additional paid-in capital 64,065 66,330 70,324 Accumulated other comprehensive loss ( 12,153 ) ( 12,082 ) ( 12,177 ) Retained earnings 76,290 75,272 50,676 Total stockholders' equity 128,341 129,662 108,972 Total Liabilities and Stockholders' Equity $ 265,276 $ 272,325 $ 261,710 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands, except share and per share data) Thirteen weeks ended May 4, April 29, 2024 2023 Revenues: Net retail sales $ 107,868 $ 112,096 Commercial revenue 5,985 6,688 International franchising 877 1,266 Total revenues 114,730 120,050 Costs and expenses: Cost of merchandise sold - retail 49,415 50,904 Cost of merchandise sold - commercial 2,533 3,358 Cost of merchandise sold - international franchising 617 885 Total cost of merchandise sold 52,565 55,147 Consolidated gross profit 62,165 64,903 Selling, general and administrative expense 47,562 45,626 Interest income, net ( 426 ) ( 76 ) Income before income taxes 15,029 19,353 Income tax expense 3,570 4,745 Net income $ 11,459 $ 14,608 Foreign currency translation adjustment ( 71 ) 97 Comprehensive income $ 11,388 $ 14,705 Income per common share: Basic $ 0.82 $ 1.01 Diluted $ 0.82 $ 0.98 Shares used in computing common per share amounts: Basic 13,925,957 14,457,858 Diluted 14,006,400 14,974,930 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Thirteen weeks ended May 4, April 29, 2024 2023 Cash flows provided by operating activities: Net income $ 11,459 $ 14,608 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,658 3,080 Share-based and performance-based stock compensation 412 1,052 Provision/adjustments for doubtful accounts ( 78 ) ( 316 ) Loss on disposal of property and equipment 139 21 Deferred taxes - ( 53 ) Change in assets and liabilities: Inventories, net ( 593 ) 4,077 Receivables, net ( 901 ) 1,626 Prepaid expenses and other assets 407 5,264 Accounts payable and accrued expenses ( 810 ) ( 6,265 ) Operating leases ( 1,716 ) ( 1,840 ) Gift cards and customer deposits ( 1,502 ) ( 799 ) Deferred revenue ( 110 ) ( 1,669 ) Net cash provided by operating activities 10,365 18,786 Cash flows used in investing activities: Purchases of property and equipment ( 2,430 ) ( 3,065 ) Net cash used in investing activities ( 2,430 ) ( 3,065 ) Cash flows used in financing activities: (Purchases) proceeds from the exercise of employee equity awards, net of tax ( 1,869 ) 94 Cash dividends paid ( 2,911 ) ( 22,098 ) Purchases of Company’s common stock ( 9,198 ) ( 3,099 ) Net cash used in financing activities ( 13,978 ) ( 25,103 ) Effect of exchange rates on cash ( 51 ) 3 Decrease in cash, cash equivalents, and restricted cash ( 6,094 ) ( 9,379 ) Cash, cash equivalents and restricted cash, beginning of period 44,327 42,198 Cash, cash equivalents and restricted cash, end of period $ 38,233 $ 32,819 Supplemental disclosure of cash flow information: Cash and cash equivalents $ 37,840 $ 32,367 Restricted cash from long-term deposits $ 392 $ 452 Total cash, cash equivalents and restricted cash $ 38,233 $ 32,819 Net cash paid during the period for income taxes $ 210 $ 646 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents Notes to Condensed Consolidated Financial Statements 1. Basis of Presentation The condensed consolidated financial statements included herein are unaudited and have been prepared by Build-A-Bear Workshop, Inc. and its subsidiaries (collectively, the “Company”) 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 February 3, 2024 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 February 3, 2024 , which were included in the Company’s Annual Report on Form 10 -K filed with the SEC on April 18, 2024. Certain prior period amounts in the notes to the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings attributable to Build-A-Bear Workshop, Inc. Significant Accounting Policies The Company's significant accounting policies are summarized in Note 2 to the consolidated financial statements included in its Form 10 -K for the year ended February 3, 2024. 7 Table of Contents 2. Revenue Currently, most of the Company’s revenue is derived from retail sales (including from its e-commerce sites) and is recognized when control of the merchandise is transferred to the customer. The Company's disaggregated revenue is fully disclosed as net sales to external customers by reporting segment and by geographic area (See Note 11 — Segment Information for additional information). The Company's direct-to-consumer reporting segment represents 94 % of consolidated revenue for the first quarter of fiscal 2024. 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 to be fulfilled from either the Company's warehouse or its stores). Direct-to-consumer revenue is recognized when control of the merchandise is transferred to the customer and for the Company's online sales, generally upon estimated delivery to the customer. Revenue is measured as the amount of consideration, including any discounts or incentives, the Company expects to receive in exchange for transferring the merchandise. Product returns have historically averaged less than one -half of one percent due to the personalized and interactive nature of its products, where consumers customize their own stuffed animal. The Company has elected to exclude from revenue all collected sales, value added, and other taxes paid by its customers. For the Company’s gift cards, revenue is deferred for single transactions until redemption including any related gift card discounts. Approximately 80 % of gift cards are redeemed within three years of issuance and over the last three years, approximately 65 % of gift cards issued have been redeemed within the first twelve months. In addition, unredeemed gift cards or breakage revenue is recorded in proportion to the customers’ redemption pattern using an estimated breakage rate based on historical experience. Subsequent to stores reopening following shutdowns caused by COVID, the Company experienced lower redemptions of its gift cards for all periods of outstanding activated cards compared to pre-pandemic redemption patterns (fiscal year 2019 and earlier), which impacts the gift card breakage rate. The Company does not believe that the redemption pattern experienced during the pandemic reflects the pattern in the future and has adjusted the historical redemption data used to calculate the breakage rate. The Company continues to evaluate expected breakage annually and adjusts the breakage rates in the fourth quarter of each year, or at other times if significant changes in customer behavior are detected. Changes to breakage estimates impact revenue recognition prospectively. Further, given the magnitude of the Company's gift card liability, the changes in breakage rates could have a significant impact on the amount of breakage revenue recognized in future periods. As a matter of sensitivity, a hypothetical 1 % change in our gift card breakage rate in fiscal 2023 would have resulted in a change in breakage revenue of $ 1.0 million. For certain qualifying transactions, a portion of revenue transactions are deferred for the obligation related to the Company’s loyalty program or when a material right in the form of a future discount is granted. In these transactions, the transaction price is allocated to the separate performance obligations based on the relative standalone selling price. The standalone selling price for the points earned for the Company’s loyalty program is estimated using the net retail value of the merchandise purchased, adjusted for estimated breakage based on historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired. The Company issues certificates daily to loyalty program members who have earned 100 or more points in North America and 50 points or more in the U.K. with certificates historically expiring in six months if not redeemed. The Company assesses the redemption rates of its certifications on a quarterly basis to update the rate at which loyalty program points turn into certifications and the rate that certifications are redeemed. In regard to the consolidated balance sheet, contract liabilities related to the loyalty program are classified as deferred revenue and other. The Company’s commercial segment includes transactions with other businesses and is mainly comprised of licensing the Company’s intellectual properties for third -party use and wholesale sales of merchandise, including supplies and fixtures. Revenue for wholesale sales is recognized when control of the merchandise or fixtures is transferred to the customer, which generally occurs upon delivery to the customer. The license agreements provide the customer with highly interrelated rights that are not distinct in the context of the contract and therefore, have been accounted for as a single performance obligation and recognized as licensee sales occur. If the contract includes a guaranteed minimum, the minimum guarantee is recognized on a straight-line basis over the guarantee term until such time as royalties earned through licensee sales exceed the minimum guarantee. The Company classifies these guaranteed minimum contract liabilities as deferred revenue on the consolidated balance sheet. The Company’s international franchising segment includes the activities with franchisees who operate store locations in certain countries and includes development fees, sales-based royalties and merchandise, including supplies and fixture sales. The Company's obligations under the franchise agreements are ongoing and include operations and product development support and training, generally concentrated around initial store openings. These obligations are highly interrelated rights that are not distinct in the context of the contract and, therefore, have been accounted for as a single performance obligation and recognized as franchisee sales occur. If the contract includes an initial, one -time nonrefundable development fee, this fee is recognized on a straight-line basis over the term of the franchise agreement, which may extend for periods up to 25 years. The Company classifies these initial, one -time nonrefundable franchise fee contract liabilities as deferred revenue on its consolidated balance sheet. Revenue from merchandise and fixture sales is recognized when control is transferred to the franchisee, which generally occurs upon delivery. The Company 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, as 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 weeks ended May 4, 2024 are not material to the financial statements. The Company reserves for “expected” credit losses on financial instruments and other commitments to extend credit rather than the “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions and reasonable and supportable forecasts. For the thirteen weeks ended May 4, 2024 and April 29, 2023 , respectively, the Company had an allowance for credit losses of $ 6.9 million and $ 6.3 million. 8 Table of Contents 3. Leases 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 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 weeks ended May 4, 2024 and April 29, 2023 (in thousands). Thirteen weeks ended May 4, 2024 April 29, 2023 Operating lease costs $ 9,584 $ 8,982 Variable lease costs (1) 2,191 2,126 Short term lease costs 26 15 Total Operating Lease costs $ 11,801 $ 11,123 ( 1 ) Variable lease costs consist of leases with variable rent structures, which are intended to increase flexibility in an environment with expected high sales volatility and provide a natural hedge against potential sales declines. Other information The table below presents supplemental cash flow information related to leases for the thirteen weeks ended May 4, 2024 and April 29, 2023 (in thousands). Thirteen weeks ended May 4, 2024 April 29, 2023 Operating cash flows for operating leases $ 9,814 $ 9,684 As of May 4, 2024 and April 29, 2023 , the weighted-average remaining operating lease term was 4.8 years and 4.0 years, respectively, and the weighted-average discount rate was 6.9 % and 6.3 %, respectively, for operating leases recognized on the Company's condensed consolidated balance sheets. For the thirteen weeks ended May 4, 2024 and the thirteen weeks ended April 29, 2023 the Company incurred no impairment charges against its right-of-use operating lease assets. Undiscounted cash flows The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the balance sheet (in thousands). Operating Leases 2024 $ 23,716 2025 20,758 2026 13,428 2027 9,758 2028 6,298 Thereafter 27,133 Total minimum lease payments 101,091 Less: amount of lease payments representing interest ( 19,909 ) Present value of future minimum lease payments 81,182 Less: current obligations under leases ( 24,276 ) Long-term lease obligations $ 56,906 As of May 4, 2024 , the Company had additional executed leases that had not yet commenced with operating lease liab ilities of $ 33.8 millio n. These leases are expected to commence in fiscal 2024 and fiscal 2025 with lease terms of two to twenty years. 9 Table of Contents 4. Other Assets Prepaid expenses and other current assets consist of the following (in thousands): May 4, February 3, April 29, 2024 2024 2023 Prepaid occupancy (1) $ 3,807 $ 2,442 $ 3,352 Prepaid insurance 733 1,250 526 Prepaid gift card fees 647 699 768 Prepaid royalties 265 319 449 Prepaid taxes (2) 127 199 28 Other (3) 6,468 6,468 8,380 Total $ 12,046 $ 11,377 $ 13,503 ( 1 ) Prepaid occupancy consists of prepaid expenses related to variable non-lease components. ( 2 ) Prepaid taxes consist of prepaid federal and state income tax. ( 3 ) Other consists primarily of prepaid expense related to information technology maintenance contracts and software as a service. Other non-current assets consist of the following (in thousands): May 4, February 3, April 29, 2024 2024 2023 Entertainment production asset (1) $ 4,736 $ 4,734 $ 3,500 Deferred compensation 1,057 2,121 885 Other (2) 281 311 400 Total $ 6,074 $ 7,166 $ 4,785 ( 1 ) Entertainment production asset includes the direct costs, production overhead and development costs in producing entertainment assets such as films or music. ( 2 ) Other consists primarily of deferred financing costs related to the Company's credit facility. 5. Accrued Expenses Accrued expenses consist of the following (in thousands): May 4, February 3, April 29, 2024 2024 2023 Accrued wages, bonuses and related expenses $ 12,007 $ 14,549 $ 12,602 Current income taxes payable 4,891 1,602 7,524 Sales and value added taxes payable 1,617 2,447 2,148 Accrued rent and related expenses (1) 1,037 1,356 898 Accrued expense - other (2) - - 4,100 Total $ 19,552 $ 19,954 $ 27,272 ( 1 ) Accrued rent and related expenses consist of accrued costs associated with non-lease components. ( 2 ) Accrued expense - other consists of accrued costs associated with a legal reserve accrual. 10 Table of Contents 6. Stock-based Compensation 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, the Company’s stockholders approved the 2020 Incentive Plan. On April 11, 2023, the Board adopted, subject to stockholder approval, the Build-A-Bear Workshop, Inc. Amended and Restated 2020 Omnibus Incentive Plan (the “Restated 2020 Incentive Plan”). On June 8, 2023, at the Company’s 2023 Annual Meeting of Stockholders (the “Annual Meeting”), the Company’s stockholders approved the Restated 2020 Incentive Plan. The Restated 2020 Incentive Plan, which is administered by the Compensation and Development Committee of the Board, permits the grant of stock options (including both incentive and non-qualified stock options), stock appreciation rights, other stock-based awards, including restricted stock and restricted stock units, cash-based awards, and performance awards pursuant to the terms of the Restated 2020 Incentive Plan. The Restated 2020 Incentive Plan will terminate on April 11, 2033, unless earlier terminated by the Board. The total number of shares of the Company’s common stock authorized for issuance under the Restated 2020 Incentive Plan increased by 800,000 to a maximum of 1,800,000 since its inception as the 2020 Incentive Plan, subject to customary capitalization adjustments, substitutions of acquired company awards and certain additions of acquired company plan shares, plus shares that are subject to outstanding awards made under the Build-A-Bear Workshop, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) that on or after April 14, 2020 may be forfeited, expire or be settled for cash. For the thirteen weeks ended May 4, 2024 and April 29, 2023 , selling, general and administrative expense included stock-based compensation expense of $ 0.4 million and $ 1.1 million, respectively. As of May 4, 2024 , there was $ 4.1 million of total unrecognized compensation expense related to unvested restricted stock awards which is expected to be recognized over a weighted-average period of 2.1 years. The following table is a summary of the balances and activity for stock options for the thirteen weeks ended May 4, 2024 : Options Shares Weighted Average Exercise Price Outstanding, February 3, 2024 12,375 $ 17.84 Granted - - Exercised ( 12,375 ) 17.84 Forfeited - - Canceled or expired - - Outstanding, May 4, 2024 - $ - The following table is a summary of the balances and activity related to time-based and performance-based restricted stock for the thirteen weeks ended May 4, 2024 : Time-Based Restricted Stock Performance-Based Restricted Stock Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Outstanding, February 4, 2024 (1) 122,609 $ 18.02 185,082 $ 17.37 Granted (1) 39,270 27.50 62,456 27.50 Vested ( 59,237 ) 13.89 - - Adjustment for performance achievement - - 53,095 2.78 Earned and Vested - - ( 106,190 ) 2.78 Forfeited (1) ( 3,333 ) 24.75 ( 3,333 ) 24.75 Outstanding, May 4, 2024 (1) 99,309 $ 24.01 191,110 $ 23.09 ( 1 ) Performance-based restricted stock outstanding, granted, and forfeited are presented at 100% of target. The total fair value of shares vested during the thirteen weeks ended May 4, 2024 and April 29, 2023 was $ 2.1 million and $ 1.6 million, respectively. The outstanding performance shares as of May 4, 2024 consist of the following: Performance Shares Unearned shares subject to performance-based restrictions at target: 2022 - 2024 consolidated, earnings before interest, taxes, depreciation and amortization (EBITDA) growth objectives 54,596 2022 - 2024 consolidated revenue growth objectives 18,198 2023 - 2025 consolidated pre-tax income growth objectives 36,309 2023 - 2025 consolidated revenue growth objectives 19,551 2024 - 2026 consolidated, cumulative earnings before interest, taxes, depreciation and amortization (EBITDA) objectives 40,596 2024 - 2026 consolidated, cumulative revenue objectives 21,860 Performance shares outstanding, May 4, 2024 191,110 7. Income Taxes The Company's effective tax rate was 23.8 % for the thirteen weeks ended May 4, 2024 , compared to 24.5 % for the thirteen weeks ended April 29, 2023 . In the first quarter of fiscal 2024, 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 the fourth quarter of fiscal 2023, the Company reversed the valuation allowance on deferred tax assets expected to be realized in the U.K. In the first quarter of fiscal 2024, the Company remains in a full valuation in certain other foreign jurisdictions. In the first quarter of fiscal 2023, the effective tax rate differed from the statutory rate of 21 % primarily due to state income tax. In addition, the Company remained in a full valuation in certain foreign jurisdictions, including the UK. 11 Table of Contents 8. Stockholders’ Equity The following table sets forth the changes in stockholders’ equity (in thousands) for the thirteen weeks ended May 4, 2024 and April 29, 2023 (in thousands): For the thirteen weeks ended May 4, 2024 For the thirteen weeks ended April 29, 2023 Common Retained Common Retained stock APIC (1) AOCI (2) earnings Total stock APIC (1) AOCI (2) earnings Total Balance, beginning $ 142 $ 66,330 $ ( 12,082 ) $ 75,272 $ 129,662 $ 148 $ 69,868 $ ( 12,274 ) $ 61,375 $ 119,117 Adoption of new accounting standard ( 785 ) ( 785 ) Subtotal $ 142 $ 66,330 $ ( 12,082 ) $ 75,272 $ 129,662 $ 148 $ 69,868 $ ( 12,274 ) $ 60,590 $ 118,332 Shares issued under employee stock plans 1 1,094 1,095 2 691 - - 693 Stock-based compensation 334 334 - 389 - - 389 Shares withheld in lieu of tax withholdings ( 2,089 ) ( 2,089 ) - - - - - Share Repurchase ( 4 ) ( 1,604 ) ( 7,591 ) ( 9,199 ) ( 1 ) ( 624 ) - ( 2,474 ) ( 3,099 ) Cash Dividends ( 2,810 ) ( 2,810 ) - - - ( 22,048 ) ( 22,048 ) Other ( 40 ) ( 40 ) - - - - - Other comprehensive (loss) income ( 71 ) ( 71 ) - - 97 - 97 Net income 11,459 11,459 - - - 14,608 14,608 Balance, ending $ 139 $ 64,065 $ ( 12,153 ) $ 76,290 $ 128,341 $ 149 $ 70,324 $ ( 12,177 ) $ 50,676 $ 108,972 ( 1 ) Additional paid-in capital (“APIC”) ( 2 ) Accumulated other comprehensive loss (“AOCI”) During the thirteen weeks ended May 4, 2024 , the Company utilized $ 9.2 million in cash to repurchase 343,406 shares under its $ 50.0 million program that was authorized by its Board of Directors on August 31, 2022. The Company's Board of Directors also authorized a quarterly cash dividend of $ 0.20 per share that was paid on April 11 , 2024, to all stockholders of record as of March 28 , 2024. For the thirteen weeks ended April 29, 2023 , the Company recorded credit impairment charges of $ 0.8 million on trade receivables into retained earnings as a result of the adoption of ASC 326 - Credit Impairment. During the thirteen weeks ended April 29, 2023, the Company utilized $ 3.1 million in cash to repurchase 132,385 shares under its $ 50.0 million program that was authorized by its Board of Directors on August 31, 2022. The Company's Board of Directors also authorized a special cash dividend of $ 1.50 per share that was paid on April 6 , 2023, to all stockholders of record as of March 23 , 2023. 12 Table of Contents 9. Income per Share The following table sets forth the computation of basic and diluted net income per share (in thousands, except share and per share data): Thirteen weeks ended May 4, April 29, 2024 2023 NUMERATOR: Net income $ 11,459 $ 14,608 DENOMINATOR: Weighted average number of common shares outstanding - basic 13,925,957 14,457,858 Dilutive effect of share-based awards: 80,443 517,072 Weighted average number of common shares outstanding - dilutive 14,006,400 14,974,930 Basic net income per common share $ 0.82 $ 1.01 Diluted net income per common share $ 0.82 $ 0.98 In calculating the diluted income per share for the thirteen weeks ended May 4, 2024 and April 29, 2023 , respectively, there were 8,199 and 9,069 shares of common stock that were outstanding at the end of the period that were not included in the computation of diluted income per share due to their anti-dilutive effect. 10. Comprehensive Income 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 loss balance on May 4, 2024 and April 29, 2023 was comprised entirely of foreign currency translation. For the thirteen weeks ended May 4, 2024 and April 29, 2023 , the Company had no reclassifications out of accumulated other comprehensive loss. 13 Table of Contents 11. Segment Information 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 U.S., Canada, Ireland and the 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): Direct-to- International Consumer Commercial Franchising Total Thirteen weeks ended May 4, 2024 Net sales to external customers $ 107,868 $ 5,985 $ 877 $ 114,730 Income before income taxes 11,722 3,107 200 15,029 Capital expenditures 2,430 - - 2,430 Depreciation and amortization 3,606 52 - 3,658 Thirteen weeks ended April 29, 2023 Net sales to external customers $ 112,096 $ 6,688 $ 1,266 $ 120,050 Income before income taxes 15,955 2,890 508 19,353 Capital expenditures 3,065 - - 3,065 Depreciation and amortization 2,973 107 - 3,080 Total Assets as of: May 4, 2024 $ 254,951 $ 8,948 $ 1,377 $ 265,276 February 3, 2024 262,299 8,801 1,225 272,325 April 29, 2023 253,338 6,902 1,470 261,710 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): North America (1) Europe (2) Other (3) Total Thirteen weeks ended May 4, 2024 Net sales to external customers $ 99,451 $ 14,449 $ 830 $ 114,730 Thirteen weeks ended April 29, 2023 Net sales to external customers $ 106,864 $ 12,658 $ 528 $ 120,050 For purposes of this table only: ( 1 ) North America includes corporately-managed locations in the United States and Canada. ( 2 ) Europe includes corporately-managed locations in the U.K. and Ireland and sales to wholesale customers in Europe. ( 3 ) Other includes franchise businesses outside of North America and Europe. 14 Table of Contents 12. Contingencies 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 Appeal for permission to appeal certain elements of the Upper Tribunal decision, and in early November 2021, a judge granted the Company's petition for permission to appeal those elements of the Upper Tribunal decision on some, but not all, of the grounds of appeal that the Company had put forward. An appeal was heard by the Court of Appeal during the first quarter of fiscal 2022, and the Court of Appeal dismissed the appeal in the third quarter of fiscal 2022. During the fourth quarter of fiscal 2022 , the UK Supreme Court declined to hear the appeal. The Company is engaging with the customs authority to attempt to resolve all outstanding issues following the application of the determined principles. The case will return to the lower tribunal for a final ruling if outstanding issues cannot be resolved. The Company maintains a provision against the related receivable, based on a current evaluation of collectability, using the latest facts available in the dispute. As of May 4, 2024 , the Company had a gross receivable balance of $ 4.8 million and a reserve of $ 3.7 million, leaving a net receivable of $ 1.1 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. 15 Table of Contents