What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-06-12 compared with 2024-12-12 · 81 added, 136 removed, 205 unchanged (51% of the section changed)

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any uncertainty or decline in general global economic conditions, caused by inflation, rising interest rates, geo-political conflicts, or other external factors, could lead to disproportionately reduced discretionary consumer spending and a corresponding reduction in demand for our products and have an adverse effect on our liquidity and profitability;

the impact of the significant tariffs on countries from which we import is expected to have an impact on our business, mainly our cost of goods and profit margin;

consumer interests can 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 our products and services;

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Continued or further volatility in retail consumer traffic could adversely affect our financial performance and profitability;

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;

our business may be adversely impacted at any time by various significant competitive threats;

global or regional health pandemics or epidemics could negatively impact our business, financial position and results of operations;

our profitability could be adversely affected by fluctuations in petroleum product prices;

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;

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;

if we cannot 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;

failure to successfully execute our omnichannel and brand expansion strategy and the cost of our investments in e-commerce and digital transformation may materially adversely affect our financial condition and profitability;

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we rely on a few global supply chain vendors to supply substantially all of our materials and merchandise, and significant price increases or any disruption in their ability to deliver materials and merchandise could harm our ability to source products and supply inventory to our stores;

our merchandise is manufactured by foreign manufacturers, 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 and foreign currency fluctuations;

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

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, foreign currency fluctuations and tariffs;

if we are unable to effectively manage our international partner-operated locations, attract new partners or if the laws relating to our international partners change, our growth and profitability could be adversely affected, and we could be exposed to additional liability;

if we cannot effectively manage our international partner-operated locations, attract new partners or if the laws relating to our international partners 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.

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fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline;

fluctuations in our operating results could reduce our cash flow, trigger restrictions under our credit agreement, cause us to be unable to repurchase shares at all, at the times or in the amounts we desire, cause the results of our share repurchase program to not be as beneficial as we would like, or cause us to discontinue our quarterly dividend program;

fluctuations in our operating results could reduce our cash flow, or trigger restrictions under our credit agreement, cause us to be unable to repurchase shares at all, at the times or in the amounts we desire, cause the results of our share repurchase program may not be as beneficial as we would like, or cause us to discontinue our quarterly dividend program;

our relatively low market capitalization can cause the market price of our common stock to become volatile;

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Business Overview

Build-A-Bear Workshop, Inc.

a Delaware corporation, was formed in 1997 as a mall-based, experiential specialty retailer.

We were formed in 1997 as a mall-based, experiential specialty retailer.

Build-A-Bear has evolved to become a beloved multi-generational brand focused on its mission to “add a little more heart to life” where guests of all ages make their own “furry friends” in celebration and commemoration of life moments.

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Build-A-Bear's pop-culture appeal has played a key role in growing our total addressable market beyond children by adding teens and adults with entertainment and sports licensing, collectible and gifting offerings, as well as by introducing new products and adding categories beyond plush.

We primarily operate through a vertical retail channel with corporately-managed stores that feature a unique combination of experience and product in which guests can “make their own stuffed animals.” We also operate e-commerce sites that focus on gift-giving, collectible merchandise and licensed products that appeal to consumers that have an affinity for characters from a range of entertainment, sports, art, and gaming properties.

We primarily operate through a vertical retail channel with corporately-managed, partner-operated, and franchise locations that feature a unique combination of experience and product in which guests can “make their own stuffed animals.” We also operate buildabear.com, which both serves as an information and communications tool to plan a store visit as well as an e-commerce site that focuses on gift-giving, collectible merchandise, and licensed products that appeal to consumers that have an affinity for characters from a range of entertainment, sports, art, and gaming properties.

Our retail stores also act as mini distribution centers that provide efficient omnichannel support for our growing digital demand.

The primary consumer target for our brick-and-mortar locations is families with children, while our e-commerce sites focus on collectors and gift givers that are primarily tweens, teens, and adults.

Additionally, we offer products in non-plush consumer categories via outbound licensing agreements with leading manufacturers.

Our strategy includes leveraging our brand strength to continue 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 our partner-operated and franchise store models, and grow our e-commerce business.

Additionally, we offer products in nonplush consumer categories via outbound licensing agreements with leading manufacturers.

Our strategy includes leveraging our brand strength to continue to evolve our brick-and-mortar retail footprint with a versatile range of formats and locations, including tourist destinations, expand into international markets primarily via our partner-operated and franchise store models, and grow our e-commerce business.

By leveraging our brand strength and owned intellectual properties through the creation of engaging short-form and long-form content for kids and adults, we endeavor to develop a circle of continuous engagement to increase purchase occasions and to continue to broaden the consumer base beyond children by adding tweens, teens and adults with entertainment and sports licensing, plus collectible and gifting offerings.

As of November 2, 2024, we had 362 corporately-managed stores globally and 4 seasonal locations, 123 partner-operated locations operating through our "third-party retail" model in which we sell our products on a wholesale basis to other companies that execute our retail experience, and 80 international franchised stores, all under the Build-A-Bear Workshop brand.

As of May 3, 2025, we had 369 corporately-managed stores globally, 148 partner-operated locations operating through our "third-party retail" model in which we sell our products on a wholesale basis to other companies that execute our retail experience, and 87 international franchised stores, all under the Build-A-Bear Workshop brand.

We also operate a limited number of seasonal locations.

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 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:

Direct-to-Consumer (“DTC”) – Corporately-managed retail stores located in the U.S., Canada, the U.K., and Ireland and two e-commerce sites;

Direct-to-Consumer (“DTC”) – Corporately-managed retail stores located in the U.S., Canada, the U.K., and the Republic of 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;

International franchising – Royalties as well as products and fixtures sales from other international operations under franchise agreements.

Selected financial data attributable to each segment for the thirteen and thirty-nine weeks ended November 2, 2024 and October 28, 2023 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Selected financial data attributable to each segment for the thirteen weeks ended May 3, 2025 and May 4, 2024 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Business Update

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 a vertical retail channel with stores that feature a unique combination of experience and product in which guests can "make their own stuffed animals" by participating in the stuffing, dressing, accessorizing, and naming of their teddy bears and other stuffed animals.

We also operate e-commerce sites that focus on gift-giving, collectible merchandise and licensed products that appeal to consumers that have an affinity for characters from a range of licensed properties.

Over the last 27 years, Build-A-Bear has become a brand with high consumer awareness and positive affinity.

We believe there are opportunities to leverage this brand strength, pop-culture status and multi-generational appeal and generate incremental revenue and profits through licensing our intellectual properties through content and entertainment development for kids and adults while also offering products at wholesale and in non-plush consumer categories through outbound licensing agreements with leading manufacturers.

Build-A-Bear Workshop offers interactive entertainment experiences via both physical and digital engagement, targeting a range of consumer segments and purchasing occasions through digitally-driven, diversified omnichannel capabilities.

We operate a vertical retail channel with experience locations that feature a unique combination of interactivity and product in which guests can “make their own stuffed animals” by participating in the stuffing, dressing, accessorizing and naming of their own teddy bears and other stuffed animals along with the now-famous "Heart Ceremony" that helps to make the experience memorable by bringing the furry friend to "life." We also operate e-commerce sites that focus on gift-giving, collectible merchandise and licensed products that appeal to consumers that have an affinity for characters from a range of entertainment, sports, art, and gaming properties.

Our engaging digital purchasing experiences include our online “Bear-Builder”, an age-gated adult-focused “Bear Cave” microsite.

Our retail stores also act as “mini distribution centers” that provide efficient omnichannel support for our digital demand.

The primary consumer target for our retail stores is families with children while our e-commerce sites focus on collectors and gift givers that are primarily tweens, teens and adults.

We have also extended our business model by leveraging our brand strength and owned intellectual properties through the creation of engaging content for kids and adults while also offering products at wholesale and in non-plush consumer categories via outbound licensing agreements with leading manufacturers.

We seek to provide outstanding guest service and experiences across all channels and touch points including our retail locations, our e-commerce sites, our mobile sites and apps as well as traditional, digital, and social media.

We believe the hands-on and interactive nature of our experience locations, our personal service model and engaging digital shopping experiences result in guests forming an emotional connection with our brand which has multi-generational appeal that captures today’s zeitgeist including desire for engaging experiences, personalization and “DIY” while being recognized as trusted, giving, and a part of pop culture.

We believe that the initiatives and investments that were put in place prior to the pandemic, and in many cases, we accelerated during the pandemic, are driving improved results, as we delivered growth in total revenues and profit in fiscal 2023.

We believe there are opportunities to extend the reach and size of our diverse consumer segments through expanded products and licensing relationships, evolved experiences, and incremental occasions, partnerships, and marketing activities.

We believe we can further develop our business by creating a continuous circle of engagement with expanded programs including outbound branded licensing and entertainment that drives retail performance and leverages our brand equity which may in turn positively impact other channels of distribution.

To continue to drive revenue and profit growth, we remain focused on our strategic priorities, which are centered primarily on three key areas:

The global expansion of our unique experience locations.

During the first thirty-nine weeks of fiscal 2024, we opened a net 40 Build-A-Bear Workshop retail experience locations, through a combination of corporately-managed, third-party operated, and franchise business models.

During the first thirteen weeks of fiscal 2025, we opened a net 15 Build-A-Bear Workshop retail experience locations, through a combination of corporately-managed, third-party operated, and franchise business models.

In fiscal 2025, we expect net new unit growth of at least 50 locations in North America and internationally through our three store business models.

We have made a concerted effort to shift to non-traditional locations, including family-centric tourist and hospitality sites, as well as partner-operated and franchise locations, and now have more than a third of total stores in non-traditional settings.

We have made a concerted effort to shift to non-traditional locations, including family-centric tourist and hospitality sites, as well as asset-light partner-operated and franchise locations, and now have more than a third of total stores in non-traditional settings.

While tourist sites have been and will remain a critical part of our location expansion strategy, recent research data supports our opportunity to reengage in profitable expansion in traditional locations on a more localized level, particularly given the numerous and flexible corporate store models we have developed in the past few years.

We also continue to develop innovative experiences to expand our brand reach, including Build-A-Bear vending machines, also known as ATMs or automatic teddy machines.

Accelerate our comprehensive digital transformation.

In addition to growing our e-commerce channel, this includes our marketing and loyalty programs, including our Count Your Candles offer, and content and entertainment initiatives, such as our first-ever animated theatrical film in 2023 “Glisten and the Merry Mission.” Our digital transformation is designed to elevate our business efficiency, integrate our customer communications to acquire new customers and increase purchase occasions, and expand our total addressable market by reaching beyond our core kid base and to continue to acquire new tween, teen and adult consumers by new offerings including gifting and personalization programs.

In addition to systems upgrades and e-commerce evolution, we have been enhancing our marketing and loyalty programs as well as creating digital content and entertainment initiatives to increase consumer engagement.

Our digital transformation is also designed to elevate our business efficiency, integrate our consumer communications to acquire new guests and increase purchase occasions while expanding our total addressable market beyond our core kid base and to acquire tween, teen and adults with new offerings including gifting, personalization and licensed options.

In September 2024, we created a new position of Chief Revenue Officer to further align our operating structure with our digital strategy.

Drive profitable growth through investment initiatives while maintaining a commitment to return capital to shareholders.

As corporate store operating margins have remained robust from higher levels of revenue combined with disciplined expense management, particularly considering recent inflationary pressures, wage increases and supply chain challenges, and as we continue to evolve our real estate portfolio with new locations and formats, plus shift to asset-light business models, the company’s cash flows have meaningfully improved.

As corporate store operating margins have remained robust from higher levels of revenue combined with disciplined expense management, particularly considering recent inflationary pressures, wage and tariff increases and supply chain challenges, and as we continue to evolve our real estate portfolio with new locations and formats, plus shift to asset-light business models, our cash flows have meaningfully improved.

This higher-level of cash flows has been used to increase support for key initiatives to deliver long-term profitable growth, while also returning capital to shareholders through dividends and share repurchases.

The Company returned capital to shareholders through two special dividends paid December 27, 2021, and April 6, 2023, totaling $42 million, through share repurchases from a $25 million stock repurchase program that was adopted in November 2021, through a $50 million stock repurchase program announced in August 2022, and through a Board-approved $100 million stock repurchase program announced in September 2024.

Furthermore, the Company announced the initiation of a quarterly dividend program on March 13, 2024, and during the first, second and third quarters of fiscal 2024, the Company declared cash dividends of $0.20 per share, totaling $2.9 million, $2.7 million and $2.7 million, respectively.

Additionally, the Board of Directors declared a quarterly cash dividend of $0.20 per share on the issued and outstanding common stock of the company, which will be paid on January 9 , 2025 , to all stockholders of record as of Novem ber 27, 2024 .

Retail Stores:

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

Thirty-nine weeks ended

November 2, 2024

October 28, 2023

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North America

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End of period

As of November 2, 2024, 51% of our corporately-managed stores were in an updated Discovery format.

As of May 3, 2025, 52% 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.

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The number of third-party retail locations opened and closed for the periods presented below is summarized as follows:

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November 2, 2024

October 28, 2023

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Beginning of period

End of period

Through our third-party retail model, there were 123 stores in operation at the end of the third quarter of 2024 with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry's and Girl Scouts of the USA.

Through our third-party retail model, there were 148 stores in operation at the end of the first quarter of 2025 with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry's and Girl Scouts of the USA.

The third-party retail model is capital light for us, with the partner company building out and operating the workshops including providing the real estate location and covering the cost of labor and inventory, which is purchased from us on a wholesale basis.

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All franchised stores have similar signage, store layout, merchandise characteristics and guest experience as our corporately-managed stores.

As of November 2, 2024, we had 5 master franchise agreements, which typically grant franchise rights for a particular country or group of countries, covering an aggregate of 8 countries.

As of May 3, 2025, we had five master franchise agreements, which typically grant franchise rights for a particular country or group of countries, covering a total of eight countries.

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

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November 2, 2024

October 28, 2023

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Beginning of period

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Thirty-nine weeks ended

Net retail sales

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retail gross margin percentage represents retail gross margin divided by net retail sales.

Thirteen weeks ended November 2, 2024 compared to thirteen weeks ended October 28, 2023

Thirteen weeks ended May 3, 2025 compared to thirteen weeks ended May 4, 2024

Total revenues.

Consolidated revenues increased 11.0%, primarily driven by a $9.1 million or 9.1% increase in Net Retail sales and a $2.6 million or 43% increase in Commercial revenue when compared to the third fiscal quarter of 2023.

Consolidated revenues increased $13.7 million or 11.9%, primarily driven by a $11.7 million or 10.9% increase in Net Retail sales and a $1.6 million or 27% increase in Commercial revenue when compared to the first fiscal quarter of 2024.

The increase in net retail sales was driven primarily by growth at existing stores.

The increased commercial revenue was due to higher sales from our wholesale customers that was driven by new wholesale customers and opening 38 third-party retail stores since the third quarter of 2023.

Net retail sales for the thirteen weeks ended November 2, 2024 were $109.5 million, compare d to $100.4 mi llion for the thirteen weeks ended October 28, 2023.

The increased commercial revenue was due to higher sales to our wholesale customers, including sales to new wholesale customers resulting from the opening of 51 third-party retail stores since the first quarter of 2024.

Net retail sales for the thirteen weeks ended May 3, 2025 were $119.6 million, compare d to $107.9 mi llion for the thirteen weeks ended May 4, 2024.

The components of the improved performance are as follows (dollars in thousands):

Thirteen weeks ended

November 2, 2024

Existing stores

53rd week shift

Foreign currency translation

Store closures

Digital sales

Gift card discounts

Gift card breakage

The higher retail revenue performance was primarily the result of an increase at existing stores and new stores partially offset by the impact of the calendar shift (53 rd week shift), the effect of store closures and a decline in web demand.

Commercial revenue was $8.6 million for the thirteen weeks ended November 2, 2024 compared to $6.0 million for the thirteen weeks ended October 28, 2023.

The $2.6 million increase is primarily due to increased sales volume from our wholesale accounts through our partner-operated third-party retail model.

International franchising revenue was $1.3 million for the thirteen weeks ended November 2, 2024 compared to $1.1 million for the thirteen weeks ended October 28, 2023.

The change is primarily the result of the timing of product shipments.

Retail gross margin.

Retail gross margin dollars increased $6.5 million to $59.4 million from $52.9 million for the thirteen weeks ended October 28, 2023.

The retail gross margin rate increased 160 basis points compared to the prior year driven by lower merchandise, freight and occupancy costs compared to the third quarter of fiscal 2023.

Selling, general and administrative.

SG&A expenses were $51.7 million, or 43.3% of consolidated revenue, for the thirteen weeks ended November 2, 2024, compared to $46.6 million, or 43.3% of consolidated revenue, for the thirteen weeks ended October 28, 2023.

The consistent performance as a percentage of revenue was driven by lower expenses for advertising and information technology costs offset by higher wage rates, increased healthcare costs and general inflationary pressures.

Interest income, net.

Interest income was $0.1 million for the thirteen weeks ended November 2, 2024 compared to interest income of $0.3 million for the thirteen weeks ended October 28, 2023.

Provision for income taxes .

Income tax expense was $3.2 million with a tax rate of 24.5% for the thirteen weeks ended November 2, 2024, as compared to income tax expense of $2.8 million with a tax rate of 26.7% for the thirteen weeks ended October 28, 2023.

In the third quarter of fiscal 2024 and 2023, the effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense.

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.

The Company remains in a full valuation in certain other foreign jurisdictions.

Thirty-nine weeks ended November 2, 2024 compared to thirty-nine weeks ended October 28, 2023

Total revenues.

Consolidated revenues increased 2.7%, primarily driven by a 24% increase in commercial revenue and a 1.5% increase in net retail sales.

Net retail sales for the thirty-nine weeks ended November 2, 2024 were $320.8 million, compare d to $316.0 mi llion for the thirty-nine weeks ended October 28, 2023, an increase of $4.9 million, or 1.5% , compared to the prior year period.

The components of this increase are as follows (dollars in thousands):

Thirty-nine weeks ended

November 2, 2024

Existing stores

Digital sales

53rd week shift

Store closures

Foreign currency translation

Gift card discounts

Gift card breakage

The increase in net retail sales was primarily the result of higher sales at existing stores and new stores, partially offset by a decline in web demand, the impact of the 53rd week shift and the effect of store closures.

Commercial revenue was $21.9 million for the thirty-nine weeks ended November 2, 2024 compared to $17.7 million for the thirty-nine weeks ended October 28, 2023.

The $4.2 million increase is primarily the result of the adding new wholesale customers as part of our third-party retail model.

International franchising revenue was $3.3 million for the thirty-nine weeks ended November 2, 2024 compared to $3.2 million for the thirty-nine weeks ended October 28, 2023.

The change is primarily the result of the timing of product shipments.

The higher retail revenue performance was primarily the result of an increased sales at existing stores and sales at new stores partially offset by the effect of store closures.

Commercial revenue was $7.6 million for the thirteen weeks ended May 3, 2025 compared to $6.0 million for the thirteen weeks ended May 4, 2024.

The $1.6 million increase is primarily due to increased sales volume from our wholesale accounts through our partner-operated third-party retail model.

International franchising revenue was $1.2 million for the thirteen weeks ended May 3, 2025 compared to $0.9 million for the thirteen weeks ended May 4, 2024.

The change is primarily the result of the timing of product shipments and the opening of 10 franchise stores since the first quarter 2024.

Retail gross margin.

Retail gross margin dollars for the thirty-nine weeks ended November 2, 2024, increased $3.9 million to $173.7 million from $169.8 million for the thirty-nine weeks ended October 28, 2023.

The retail gross margin rate increase of 40 basis points from the prior year was driven by lower merchandise costs partially offset by increased occupancy, warehousing and distribution costs compared to the first three quarters of fiscal 2023.

Retail gross margin dollars increased $9.5 million to $68.0 million from $58.5 million for the thirteen weeks ended May 4, 2024.

The retail gross margin rate increased 270 basis points compared to the prior year driven primarily by improved merchandise margin compared to the first quarter of fiscal 2024.

Selling, general and administrative.

SG&A expenses were $148.4 million, or 42.9% of consolidated revenue, for the thirty-nine weeks ended November 2, 2024, compared to $140.5 million, or 41.7% of consolidated revenue, for the thirty-nine weeks ended October 28, 2023.

The increase in overall expense was driven by higher wage rates, expense timing and general inflationary pressures.

SG&A expenses were $53.6 million, or 41.7% of consolidated revenue, for the thirteen weeks ended May 3, 2025, compared to $47.6 million, or 41.5% of consolidated revenue, for the thirteen weeks ended May 4, 2024.

The increase was driven by higher wage rates, increased healthcare costs and general inflationary pressures.

Interest income, net.

Interest income was $0.7 million for the thirty-nine weeks ended November 2, 2024 compared to interest income of $0.5 million for the thirty-nine weeks ended October 28, 2023.

The increase in interest income compared to the prior year is the result of the Company's cash management strategy to invest cash on-hand in short-term, highly liquid investments.

Interest income was $0.2 million for the thirteen weeks ended May 3, 2025 compared to interest income of $0.4 million for the thirteen weeks ended May 4, 2024.

Provision for income taxes .

Income tax expense was $9.5 million with a tax rate of 24.1% for the thirty-nine weeks ended November 2, 2024, as compared to $9.6 million with a tax rate of 24.0% for the thirty-nine weeks ended October 28, 2023.

In the first thirty-nine weeks of fiscal 2024 and 2023, 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.

The Company remains in a full valuation in certain other foreign jurisdictions.

Income tax expense was $4.3 million with a tax rate of 22.0% for the thirteen weeks ended May 3, 2025 as compared to $3.6 million with a tax rate of 23.8% for the thirteen weeks ended May 4, 2024.

In the first quarter of fiscal 2025, 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 and the foreign-derived intangible income deduction.

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 addition, in the first quarter of fiscal 2025 and 2024, the Company remains in a full valuation allowance in certain foreign jurisdictions.

Earnings before Interest, Taxes, Depreciation, and Amortization

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October 28, 2023

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October 28, 2023

Income before income taxes (pre-tax)

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Earnings before interest, taxes, depreciation, and amortization

EBITDA for the thirteen weeks ended November 2, 2024 increased $3.4 million, or 25.3% to $16.7 million from $13.3 million for the thirteen weeks ended October 28, 2023.

EBITDA for the thirteen weeks ended May 3, 2025 increased $4.9 million, or 26.7% to $23.1 million from $18.3 million for the thirteen weeks ended May 4, 2024.

The increase was driven by gross profit driven by increased retail and commercial margins partially offset by higher SG&A expenses.

EBITDA for the thirty-nine weeks ended November 2, 2024, increased $0.7 million, or 1.5%, to $49.9 million from $49.2 million for the thirty-nine weeks ended October 28, 2023.

The increase in EBITDA was driven by retail and commercial margins partially offset by higher SG&A expenses.

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;

(1) changes in general economic conditions and consumer spending patterns;

(2) increases or decreases in our existing store and e-commerce sales;

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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 2023 fiscal fourth quarter was 14 weeks.

Our most recent 14-week quarter was the 2023 fiscal fourth quarter.

Liquidity and Capital Resources

As of November 2, 2024, we had a consolidated cash balance of $29.0 million, 79% of which w as domiciled within the U.S.

As of May 3, 2025, we had a consolidated cash balance of $44.3 million, 79% of which w as domiciled within the 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.

Additionally, during 2024 we have used cash on-hand to invest in short-term, highly liquid investments with original maturities of three months or less resulting in interest income of $0.7 million during the thirty-nine weeks ended November 2, 2024.

Additionally, during 2025 we have used cash on-hand to invest in short-term, highly liquid investments with original maturities of three months or less resulting in interest income of $0.2 million during the thirteen weeks ended May 3, 2025.

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

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Thirteen weeks ended

Net cash provided by operating activities

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Effect of exchange rates on cash

Decrease in cash, cash equivalents, and restricted cash

Increase/(Decrease) in cash, cash equivalents, and restricted cash

Operating Activities.

Cash provided by operating activities decreased $5.2 million for the thirty-nine weeks ended November 2, 2024, as compared to the thirty-nine weeks ended October 28, 2023.

This decrease in cash from operating activities was primarily driven by increased cash spent on inventory purchases in anticipation of the uncertainty in cost due to potential tariffs and higher accounts receivable resulting from higher commercial revenue offset by increases in payables and accrued expenses.

Cash provided by operating activities increased $17.4 million for the thirteen weeks ended May 3, 2025, as compared to the thirteen weeks ended May 4, 2024.

This increase in cash from operating activities was primarily the result of a decrease in accounts receivable resulting from lower receivables from commercial accounts and an increase in accounts payable and accrued expenses.

These increases were partially offset by higher cash spent on inventory purchases due to accelerated purchases in anticipation of the uncertainty in cost due to potential tariffs.

Investing Activities.

Cash used in investing activities decreased $1.6 million for the thirty-nine weeks ended November 2, 2024, as compared to the thirty-nine weeks ended October 28, 2023.

This decrease in cash used in investing activities was primarily driven by lower spending on capital expenditures.

Cash used in investing activities increased $0.5 million for the thirteen weeks ended May 3, 2025, as compared to the thirteen weeks ended May 4, 2024.

The increase in cash used in investing activities was primarily driven by increased spending on capital expenditures.

Financing Activities.

Cash used in financing activities decreased $5.7 million for the thirty-nine weeks ended November 2, 2024, as compared to the thirty-nine weeks ended October 28, 2023.

This decrease in cash used in financing activities was driven primarily by the payment in 2023 fiscal first quarter of a special cash dividend of $22.1 million compared to quarterly dividends of $2.9 million, $2.7 million and $2.7 million paid respectively in the first, second and third fiscal quarters of 2024.

This was partially offset by an in crease in repurchases of our common stock during the thirty-nine weeks ended November 2, 2024.

Cash used in financing activities decreased $5.6 million for the thirteen weeks ended May 3, 2025, as compared to the thirteen weeks ended May 4, 2024.

This decrease in cash used in financing activities was driven by a decrease in the amount utilized to repurchase shares during the first quarter when compared to the prior year.

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.

As of November 2, 2024, borrowings under the agreement would bear interest at (a) a base rate determined under the agreement, or (b) the borrower's option, at a rate based on SOFR, plus in either case a margin based on average undrawn availability as determined in accordance with the agreement.

As of November 2, 2024, our borrowing base was $25.0 million.

As a result of a $250 ,000 letter of credit outstanding against the line of credit, approximately $24.7 million was available for borrowing as of November 2, 2024.

We had no outstanding borrowings as of November 2, 2024.

As of May 3, 2025, borrowings under the agreement would bear interest at (a) a base rate determined under the agreement, or (b) the borrower's option, at a rate based on SOFR, plus in either case a margin based on average undrawn availability as determined in accordance with the agreement.

As of May 3, 2025, our borrowing base was $25.0 million and the Company had no outstanding borrowings as of the end of the quarter.

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 tend to be shorter term leases to provide flexibility in aligning stores with market trends.

During fiscal 2023 and into fiscal 2024, lease extensions began to have longer terms as we have secured longer contracts with more favorable terms.

Beginning in fiscal 2023, lease extensions began to have longer terms as we have secured longer contracts with more favorable terms.

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.

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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 to reflect the current market rates.

The leases typically provide the lessee with the first right for renewal at the end of the lease.

We may also be required to make deposits and rent guarantees to secure new leases as we expand.

Business rates 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 weeks ended November 2, 2024 totaled $9.6 million for information technology projects and new store openings, and we expect to spend approximately $18 to $20 million on capital expenditures in fiscal 2024 .

Total inventory at quarter end was $70.8 million, an increase of $6.3 million or 10% from the end of the fiscal 2023 third quarter.

We accelerated the acquisition of our core products in anticipation of the uncertainty in cost due to potential tariffs.

and the Republic of Ireland also typically contain provisions requiring rent reviews every five years in which the base rent that we pay is adjusted to current market rates.

These rent reviews require that base rents cannot be reduced if market conditions have deteriorated but can be changed “upwards only.” We may be required to pay base rents that are significantly higher than we have projected.

As a result of these and other factors, we may not be able to operate our European store locations profitably.

If we cannot do so, our results of operations and financial condition could be harmed, and we may be required to record significant additional impairment charges.

Capital spending through the thirteen weeks ended May 3, 2025 totaled $2.9 million for information technology projects and new store openings, and we expect to spend approximately $20 to $25 million on capital expenditures in fiscal 2025 .

Total inventory at quarter end was $72.3 million, an increase of $8.3 million or 13% from the end of the fiscal 2024 first quarter.

Beginning in the second half of fiscal 2024 and continuing into the first quarter of fiscal 2025, we accelerated the acquisition of our core products in anticipation of the uncertainty in cost due to potential tariffs.

We are comfortable with the level and composition of our inventory.

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

As of November 2, 2024, we had purchase obligations totaling approximately $99.7 million, of whi ch $29.0 million are due in the next 12 months.

As of May 3, 2025, we had purchase obligations totaling approximately $100.7 million, of whi ch $26.7 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.

We utili zed $23.0 million in cash to repurchase 832,944 shares during the thirty-nine weeks ended November 2, 2024, compared to using $15.2 million in cash to repurchase 672,734 shares during the thirty-nine weeks ended October 28, 2023.

Since the end of the third fiscal quarter, we utilized $0.2 million in cash to repurchase 5,288 shares leaving $97.0 million available under the September 2024 Stock Repurchase Program.

We utili zed $4.2 million in cash to repurchase 108,502 shares during the thirteen weeks ended May 3, 2025, compared to using $9.2 million in cash to repurchase 343,406 shares during the thirteen weeks ended May 4, 2024.

Off-Balance Sheet Arrangements

Global inflation is well above recent levels and global interest rates have risen in an effort to curb inflation.

The impact of inflation on the Company's business operations was seen throughout fiscal 2023 and continued to adversely affect our business in fiscal 2024, mainly through rising store labor costs.

The impact of inflation on the Company's business operations was seen throughout fiscal 2024, predominately through rising store labor costs.

However, we continue to take mitigating actions, such as select strategic price increases on highly sought-after products and leveraging distribution costs.

We expect the inflationary pressures experienced thus far in fiscal 2024 to continue throughout the rest of fiscal 2024, specifically through wage increases.

We expect the inflationary pressures experienced in fiscal 2024 to continue into fiscal 2025, specifically through wage increases and tariffs on inventory purchases.

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 2025 or in future years.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis