What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-06-11 compared with 2025-12-11 · 158 added, 168 removed, 173 unchanged (65% of the section changed)

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Our actual results may differ materially from the results discussed in the forward-looking statements.

These risks and uncertainties include, without limitation, those detailed under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025, as filed with the SEC, and include the following:

These risks and uncertainties include, without limitation, those detailed under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2026, as amended by Amendment No.

1, as filed with the SEC, and include the following:

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

the uncertainty of the impact of tariffs on countries from which we import is expected to have an impact on our business, mainly our cost of goods and profit margin, including uncertainty regarding the ultimate availability, timing, and amount of any remaining refunds of IEEPA tariffs we previously paid which have been subject to recent judicial developments;

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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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;

our use of artificial intelligence technologies presents operational, reputational, data security and legal risks that could adversely affect our business and financial performance, and any failure to effectively leverage artificial technologies in our business could negatively impact our customer engagement and competitive position;

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;

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we may not be able to operate successfully if we lose key personnel, are unable to hire qualified additional personnel, or experience turnover of our management team;

because our business is largely based on a vertical retail model, labor-related matters, ranging from union formation to labor disputes, may adversely affect our operations;

we may be unsuccessful in acquiring businesses or engaging in other strategic transactions, which may negatively affect our financial condition and profitability.

Business Overview

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

Build-A-Bear has since 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.

Guests create their own stuffed animals by participating in the stuffing, dressing, accessorizing, and naming of their own teddy bears and other plush toys based on the Company’s own intellectual property and in conjunction with a variety of best-in-class licenses.

The hands-on and interactive nature of our more than 600 company-owned, partner-operated and franchise experience locations around the world, combined with Build-A-Bear’s pop-culture appeal, often fosters a lasting and emotional brand connection with consumers, and has enabled the Company to expand beyond its retail stores to include e-commerce sales on www.buildabear.com and non-plush branded consumer categories via out-bound licensing agreements with leading manufacturers, as well as the creation of engaging content via Build-A-Bear Entertainment (a subsidiary of Build-A-Bear Workshop, Inc.).

Over the last 28 years, Build-A-Bear has become a brand with high consumer awareness, positive affinity, and strong retail influence by leveraging our brand strength to grow our brick-and-mortar retail footprint beyond traditional malls through a range of store sizes, formats and locations including tourist destinations.

We are also growing through our websites, which focus on gift-giving, collectible merchandise, and licensed products.

In addition to growing our corporately-managed store and e-commerce footprint, we are also growing through partner-operated and franchised locations, particularly for our international expansion.

Our ongoing digital transformation, which touches our e-commerce business, consumer loyalty program and digital marketing and content, has led to omni-channel growth over the past several years.

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, 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 and buildaber.co.uk, 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 fulfillment for our 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 evolve our brick-and-mortar retail footprint with a versatile range of formats and locations, including tourist destinations, expanding into international markets primarily via our partner-operated and franchise store models, and growing 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 with tweens, teens and adults.

As of November 1, 2025, we had 375 corporately-managed stores globally, 168 partner-operated locations operating through our partner-operated model in which we sell our products on a wholesale basis to other companies that execute our retail experience, and 108 international franchised stores, all under the Build-A-Bear Workshop brand.

We also operate a limited number of seasonal locations.

In addition to these locations, 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.

Build-A-Bear Workshop, Inc., a Delaware corporation, was formed in 1997 as a mall-based, experiential specialty retailer for children.

Build‑A‑Bear has evolved to become a leading global "retailtainment" brand on a mission to add a little more heart to life.

At Build-A-Bear, guests are invited to create personalized furry friends through a unique stuffing, dressing, accessorizing and naming process, accentuated by a memorable Heart Ceremony that creates moments of connection for people of all ages.

Over the years, Build‑A‑Bear has grown into a multi‑generational phenomenon, positioned at the intersection of pop‑culture trends.

Beyond its signature retail experience, our brand also offers pre‑stuffed plush, gifting, partnerships with best‑in‑class licensed and collectible characters, and original storytelling through Build‑A‑Bear Entertainment, LLC.

Build‑A‑Bear’s current brand platform and message, “The Stuff You Love,” crosses ages and cultures while celebrating nearly 30 years of helping people mark life’s meaningful moments.

The Build-A-Bear brand has high consumer awareness and positive affinity, and we leverage our brand strength to expand the footprint of our retail experience locations through a range of store sizes, formats, and locations, including tourist destinations.

In addition to growing our corporately-managed store footprint, we are also growing through partner-operated and franchise locations, particularly for our international expansion.

Our ongoing digital transformation, which touches our e-commerce business, consumer loyalty program, and digital content, has led to omnichannel growth over the past several years.

Build-A-Bear's pop-culture appeal plays a key role in expanding our total addressable market beyond children to teens and adults with sports licensing, collectible and gifting offerings, as well as to categories beyond plush.

As of May 2, 2026, the Company had 669 global locations through a combination of its corporately-managed, partner-operated, and franchise models.

This reflects 376 corporately-managed locations, including 334 stores in the United States (“U.S.”) and Canada and 42 stores in the United Kingdom ("U.K.") and the Republic of Ireland, 181 partner-operated locations in which we sell our products on a wholesale basis to other companies that then, in turn, execute our retail experience, and 112 international franchise locations , all under the Build-A-Bear Workshop brand.

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.

For the 2026 fiscal year to date, the Company had net new unit growth of 7 experience locations, comprised of one corporately managed location, 3 partner-operated locations, and 3 international franchise locations.

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 United States (the "U.S."), Canada, the United Kingdom ("U.K."), and the Republic of Ireland and two e-commerce sites;

Commercial – Transactions with other businesses, mainly comprised of wholesale product sales to partner-operated locations and licensing our intellectual property, including entertainment properties, for third-party manufacturing and sales;

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 1, 2025 and November 2, 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

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

Commercial – Transactions with other businesses, mainly comprised of wholesale product sales and licensing our intellectual property, including entertainment properties, for third-party use;

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

Selected financial data attributable to each segment for the thirteen weeks ended May 2, 2026 and May 3, 2025 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Recent Events and Trends Regarding Tariffs and International Trade

Global trade policy continues to evolve and the ultimate impact of recent developments with respect to U.S.

tariffs is unclear.

On February 20, 2026, the U.S.

Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA").

On March 4, 2026, the Court of International Trade ordered U.S.

Customs and Border Protection ("CBP") to begin the refund process for all importers who were subject to the IEEPA duties.

In April 2026, the CBP opened a portal for the refund process to begin for certain importers.

Based on these court rulings affirming the Company's legal right to recover IEEPA tariffs, the Company determined that it is entitled to a tariff refund of approximately $13.2 million, which was recorded in receivables, net on the condensed consolidated balance sheet.

For the thirteen weeks ended May 2, 2026, the Company recorded a $10.4 million benefit for these tariffs in cost of merchandise sold-retail on the condensed consolidated statements of operations and comprehensive income, $7.0 million of which related to prior fiscal year costs, and reduced the carrying value of inventory by $2.8 million on the condensed consolidated balance sheet as of May 2, 2026.

The related inventory with tariffs is expected to be substantially sold in the second fiscal quarter of 2026.

The ultimate availability, timing, and amount of any remaining refunds of such tariffs remain uncertain and are subject to further legal, regulatory, and administrative developments.

Following the Supreme Court’s decision, the U.S.

presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs.

There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on the Company's business.

The Company continues to monitor and evaluate these developments and assess their potential impact on its business, financial condition, and results of operations.

Since we import the vast majority of our products from vendors outside the U.S., we face uncertainty and risks related to tariffs and other trade policies that could negatively impact our Company.

Tariffs and other non-tariff trade practices can adversely affect our business in multiple ways, including increased costs of our products.

While we have taken steps in recent years to diversify our supply chain and reduce China sourcing by shifting primarily to Vietnam, we remain subject to substantial potential exposure to tariffs.

Specifically, the latest tariffs implemented by the U.S.

continues to have an impact on our cost structure and product margins.

Additionally, the uncertainty about trade policy, tariff rates, and other changes in practices affecting international trade, including whether such tariffs or other measures will be withdrawn, or modified in the future, makes it difficult for us to operate optimally.

Depending on the level and longevity of the tariff disruption, we will continue to adjust our pricing while monitoring the impact of inflation and consumer confidence, on both a micro and macro basis.

Description of Operations

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.

We operate a vertical retail channel with corporately-operated experience locations that feature a unique combination of interactivity and product in which guests can “make their own” furry friends 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." Our retail footprint also comprises both domestic and international partner-operated and franchise locations that extend our unique combination of experience and product beyond our corporately-operated locations.

We also operate buildabear.com, which serves as an information and communications tool to plan a store visit as well as an e-commerce platform 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 engaging digital purchasing experiences include our online “Bear-Builder” and 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.

While the primary consumer target for our retail stores is families with children, 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 seek to provide outstanding guest 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 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.

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 pretax profit in fiscal 2022, 2023 and 2024.

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 2025, we opened a net 52 Build-A-Bear Workshop retail experience locations, through a combination of corporately-managed, partner operated, and franchise business models.

In fiscal 2025, we expect net new unit growth of a t least 60 locations in North America and internationally through our three business models.

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.

Accelerate our comprehensive digital transformation.

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.

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 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.

Retail Stores:

Operating Strategies

Our operating strategies have enabled us to build a strong foundation while continuing to invest in the brand’s iconic status, diversifying and growing the business by reaching more consumers, in more places, with more products, for more occasions.

Upon that foundation, we have evolved to focus on scaling our company through a four-pillar strategic framework, supported by four platform areas.

These four pillars are intended to leverage the strength of the brand to drive incremental revenue, with pillars one and two continuing to activate proven strategies, with an expectation that they will help fund the expansion into the newer revenue streams represented by pillars three and four.

These four pillars are as follows:

Pillar One - Organic Growth.

While we expect to add new and faster-growing revenue streams over time, we must also continue to drive our core business.

We plan to do this by optimizing our omnichannel model via deeper integration, greater visibility, and more meaningful engagement with guests to improve lifetime value.

Our physical experience locations remain critical in building the strength of the Build-A-Bear brand with our core kid consumer.

At the same time, our e-commerce business remains our single largest store, serving as a key information destination and a highly complementary channel that extends our reach beyond the core by over-indexing with teen and adult gifting and collectible consumers.

Pillar Two - Location Expansion.

We expect to continue growing our experiential location footprint across all three retail business models, including corporately operated, partner-operated, and franchise, with a particular focus on international growth through our asset-light partner-operated approach.

We expect to continue opening across global locations, in a broad range of formats, from smaller shop-in-shops to larger, tourist-destination locations.

Pillar Three - Wholesale and Outbound Brand Licensing .

We are enhancing our capabilities, from systems to sourcing to replenishment, to be able to sell branded products to traditional wholesale customers beyond our experience locations.

These products will be based on a variety of form factors and designed for the wholesale channel, including, for example, pre-stuffed plush.

This effort is designed not only to drive incremental revenue but also to extend the brand presence to tens of thousands of new points of sale.

We also intend to leverage our nearly 30 years of multi-generational brand equity to access substantial whitespace and enter adjacent non-plush categories through outbound licensing relationships, again, to bring Build-A-Bear-branded items to more places.

Importantly, we view these additional spaces as complementary to our Workshops, with the intention of ultimately serving as a mechanism for awareness and trial, driving more traffic to our stores for the full Build-A-Bear experience.

Pillar Four - Gifting and Personalization .

This pillar is designed to gain more share of the growing multi-billion-dollar gifting and personalization markets.

Build-A-Bear offers beloved gifts that creates memories for both the gift-giver and recipient across multiple age groups and occasions.

With over one-third of our revenue currently driven by birthdays, we have already proven that the brand is associated with gifting occasions but believe there is a robust opportunity to expand into gifts for more of life’s special moments, with our powerful brand and personalization options serving as an important competitive point of difference.

These four pillars are enabled by our continued focus on four platform areas that span each of the pillars and support their continued growth.

The four platforms are as follows:

Platform One - Enhance Brand.

Building our brand is core to our long-term growth, as it is the cornerstone of our ability to bring the unique and memorable Build-A-Bear experience to more guests around the world.

We leverage innovative, brand-aligned marketing strategies to reach and engage our guests to enhance their affinity with and trust of Build-A-Bear.

Platform Two - Leverage Content.

We drive elevated consumer engagement with Build-A-Bear through the strategic integration of product and experience across several different content strategies, including:

stories that we tell through the launches of seasonal collections;

owned Intellectual Property that can evolve from a screen-based character into plush;

and partnerships with licensed brands for whom we can create unique “make-your-own” plush interpretations of their beloved characters.

Platform Three - Evolve Technology.

We strategically evolve our technological infrastructure as needed to support our future growth and make data-driven decisions that allow us to scale more effectively.

Platform Four - Elevate Organization.

We elevate our workforce to support the capabilities required for growth both through the development of current talent and the strategic addition of new team members to our organization.

Corporately-Managed Locations:

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 1, 2025

November 2, 2024

The table below sets forth the number of Build-A-Bear Workshop corporately-managed stores in the U.S., Canada, and Puerto Rico (collectively, North America) and the U.K.

and Ireland (collectively, Europe) for the periods presented:

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North America

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End of period

As of November 1, 2025, 53% of our corporately-managed stores were in an updated Discovery format.

As of May 2, 2026, 53% 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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Partner-Operated Locations:

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

Thirty-nine weeks ended

November 1, 2025

November 2, 2024

The number of partner operated locations opened and closed for the periods presented below is summarized as follows:

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Beginning of period

End of period

Through our partner-operated model, there were 168 stores in operation at the end of the third quarter of 2025 with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry's and Girl Scouts of the USA.

Through our partner-operated model, there were 181 stores in operation at the end of the first quarter of 2026 with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry's and Girl Scouts of the USA.

The partner-operated 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.

These locations are heavily weighted to the hospitality industry, which allow us to further advance our focus on experience location expansion in non-traditional and tourist areas, as well as shop-in-shop arrangements within other retailers’ stores.

International Franchise Stores:

Our first franchisee location was opened in November 2003.

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

As of November 1, 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 1, 2025

November 2, 2024

Beginning of periods(1)

International Franchise Locations:

Our first franchisee location opened in November 2003.

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

As of May 2, 2026, we had seven master franchise agreements, which typically grant franchise rights for a particular country or group of countries, covering a total of twelve countries.

The number of international franchise locations opened and closed for the periods presented below are summarized as follows:

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Net retail sales

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

Thirteen weeks ended November 1, 2025 compared to thirteen weeks ended November 2, 2024

Thirteen weeks ended May 2, 2026 compared to thirteen weeks ended May 3, 2025

Total revenues.

Consolidated revenues increased $3.2 million or 2.7%, primarily driven by a $2.8 million or 2.5% increase in Net Retail sales and a $0.4 million or 4% increase in Commercial revenue when compared to the third fiscal quarter of 2024.

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

The increased commercial revenue was due to higher sales to our wholesale customers, including sales to new wholesale customers resulting from the opening of 45 partner-operated locations s ince the third quarter of 2024.

Net retail sales for the thirteen weeks ended November 1, 2025 were $112.3 million, compare d to $109.5 mi llion for the thirteen weeks ended November 2, 2024.

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

Consolidated revenues decreased $3.1 million or 2.4%, primarily driven by a $6.1 million or 5.1% decrease in Net Retail sales partially offset by a $3.3 million or 44% increase in Commercial revenue when compared to the first fiscal quarter of 2025.

The decrease in net retail sales was driven by lower sales at existing stores, decreased e-commerce demand offset by sales at new stores.

The increased commercial revenue was due to higher sales to our wholesale customers, including sales to new wholesale customers resulting from a net increase of 54 partner-operated locations s ince the first quarter of 2025.

Net retail sales for the thirteen weeks ended May 2, 2026 were $113.5 million, compare d to $119.6 mi llion for the thirteen weeks ended May 3, 2025.

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

Thirteen weeks ended

November 1, 2025

Existing stores

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Digital sales

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

Commercial revenue was $8.9 million for the thirteen weeks ended November 1, 2025 compared to $8.6 million for the thirteen weeks ended November 2, 2024.

The $0.4 million increase i s primarily due to increased sales volume from our wholesale accounts through our partner-operated retail model.

International franchising revenue was $1.5 million for the thirteen weeks ended November 1, 2025 compared to $1.3 million for the thirteen weeks ended November 2, 2024.

The $0.2 million increase is primarily due to timing of product shipments.

Retail gross margin.

Retail gross margin dollars increased $1.1 million to $60.5 million from $59.4 million for the thirteen weeks ended November 2, 2024.

The retail gross margin rate decreased 30 basis points compared to the prior year driven primarily by improved merchandise margin compared to the third quarter of fiscal 2024.

Selling, general and administrative.

SG&A expenses were $55.3 million, or 45.1% of consolidated revenue, for the thirteen weeks ended November 1, 2025, compared to $51.7 million, or 43.3% of consolidated revenue, for the thirteen weeks ended November 2, 2024.

The increase was driven by higher store-level compensation, corporate costs and general inflationary pressures.

These increases were partially offset by favorable marketing expense timing.

Interest income, net.

Interest income was $0.2 million for the thirteen weeks ended November 1, 2025, compared to interest income of $0.1 million for the thirteen weeks ended November 2, 2024.

Provision for income taxes .

Income tax expense was $2.6 million with a tax rate of 24.3% for the thirteen weeks ended November 1, 2025, as compared to $3.2 million with a tax rate of 24.5% for the thirteen weeks ended November 2, 2024.

The third quarter of fiscal 2025 effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense offset by the tax impact of equity awards vesting and the foreign-derived intangible income deduction.

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

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

Thirty-nine weeks ended November 1, 2025 compared to thirty-nine weeks ended November 2, 2024

Total revenues.

Consolidated revenues increased $29.4 million or 8.5%, primarily driven by a $25.7 million or 8.0% increase in Net Retail sales and a $3.3 million or 15% increase i n Commercial revenue when compared to the third fiscal quarter of 2024.

The increase i n net retail sales was driven primarily by growth at existing stores and sales at new stores.

The increased co mmercial revenue was due to higher sales to our wholesale customers, including sales to new wholesale customers resulting from the opening of 45 partner-operated l ocations since the third quarter of 2024.

Net retail sales for the thirty-nine weeks ended November 1, 2025 were $346.5 million, compare d to $320.8 mi llion for the thirty-nine weeks ended November 2, 2024.

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

Thirty-nine weeks ended

November 1, 2025

Existing stores

Store closures

Foreign currency translation

Gift card breakage

Gift card discounts

Digital sales

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

Commercial revenue was $25.2 million for the thirty-nine weeks ended November 1, 2025 compared to $21.9 million for the thirty-nine weeks ended November 2, 2024.

The $3.3 million increase i s primarily due to increased sales volume from our wholesale accounts through our partner-operated retail model.

International franchising revenue was $3.6 million for the thirty-nine weeks ended November 1, 2025 compared to $3.3 million for the thirty-nine weeks ended November 2, 2024.

The change is primarily the result of the timing of product shipments and the opening of 19 franchise stores since the third quarter 2024.

The lower retail revenue performance was primarily due to lower sales at existing stores, decreased e-commerce demand offset by sales at new stores.

Commercial revenue was $10.9 million for the thirteen weeks ended May 2, 2026 compared to $7.6 million for the thirteen weeks ended May 3, 2025.

The $3.3 million increase i s prima rily due to increased sales volume from our wholesale accounts through our partner-operated retail model.

International franchising revenue was $0.9 million for the thirteen weeks ended May 2, 2026 compared to $1.2 million for the thirteen weeks ended May 3, 2025.

The $0.3 million decrea se is primarily due to timing of product shipments.

Retail gross margin.

Retail gross margin dollars increased $20.9 million to $194.6 million from $173.7 million for the thirty-nine weeks ended November 2, 2024.

The retail gross margin rate increased 210 basis points compared to the prior year driven primarily by improved merchandise margin compared to the first three quarters of fiscal 2024.

Retail gross margin dollars increased $5.1 million to $73.1 million from $68.0 million for the thirteen weeks ended May 3, 2025 .

The retail gross margin rate increased 750 basis points compared to the prior year, including a 560 basis-point benefit from the $7.0 million IEEPA tariff refund related to prior fiscal year costs, with the remaining 190 basis-points primarily driven by selective price increases.

Selling, general and administrative.

SG&A expenses were $165.3 million, or 44.0% of consolidated revenue, for the thirty-nine weeks ended November 1, 2025, compared to $148.4 million, or 42.9% of consolidated revenue, for the thirty-nine weeks ended November 2, 2024.

The increase was driven by higher store-level compensation, corporate costs and general inflationary pressures.

These increases were partially offset by favorable marketing expense timing.

SG&A expenses were $56.1 million, or 44.8% of consolidated revenue, for the thirteen weeks ended May 2, 2026, compared to $53.6 million, or 41.7% of consolidated revenue, for the thirteen weeks ended May 3, 2025.

The increase was driven by higher total compensation costs, general inflationary pressures, and longer-range investments.

Interest income, net.

Interest income was $0.6 million for the thirty-nine weeks ended November 1, 2025 compared to interest income of $0.7 million for the thirty-nine weeks ended November 2, 2024.

Interest income was $0.1 million for the thirteen weeks ended May 2, 2026, compared to interest income of $0.2 million for the thirteen weeks ended May 3, 2025.

Provision for income taxes .

Income tax expense was $9.9 million with a tax rate of 21.6% for the thirty-nine weeks ended November 1, 2025 as compared to $9.5 million with a tax rate of 24.1% for the thirty-nine weeks ended November 2, 2024.

The fiscal 2025 effective tax rate differed from the statutory rate of 21% primarily due to state income tax expense offset by the tax impact of equity awards vesting, the foreign-derived intangible income deduction and discrete benefits related to settlement of a prior period tax position.

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

Income tax expense was $5.6 million with a tax rate of 23.4% for the thirteen weeks ended May 2, 2026, as compared to $4.3 million with a tax rate of 22.0% for the thirteen weeks ended May 3, 2025 .

In the first quarter of fiscal 2026, 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 deduction eligible income (formerly foreign derived intangible income).

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 foreign derived intangible income.

In addition, in the first quarter of fiscal 2026 and 2025, the Company remains in a full valuation allowance in certain foreign jurisdictions.

Earnings before Interest, Taxes, Depreciation, and Amortization

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November 1, 2025

November 2, 2024

November 1, 2025

November 2, 2024

Income before income taxes (pre-tax)

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Earnings before interest, taxes, depreciation, and amortization

EBITDA for the thirteen weeks ended November 1, 2025 decreased $2.5 million, or 14.7% to $14.2 million from $16.7 million for the thirteen weeks ended November 2, 2024.

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

EBITDA for the thirty-nine weeks ended November 1, 2025 increased $6.2 million, or 12.4% to $56.1 million from $49.9 million for the thirty-nine weeks ended November 2, 2024.

Th e increase was driven by gross profit resulting from increased retail and commercial margins partially offset by higher SG&A expenses.

EBITDA for the thirteen weeks ended May 2, 2026 increased $4.6 million, or 20.0% to $27.7 million from $23.1 million for the thirteen weeks ended May 3, 2025.

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

The increase to retail margin primarily resulted from the benefit of IEEPA tariff refund, $7 million of which related to prior fiscal year costs.

Seasonality and Quarterly Results

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Liquidity and Capital Resources

As of November 1, 2025, we had a consolidated cash balance of $27.7 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 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 $0.6 million during the thirty-nine weeks ended November 1, 2025.

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

Thirty-nine weeks ended

Our cash requirements are primarily for the opening, remodeling or reformatting of stores, installation and upgrades of information systems and working capital.

Over the past several years, we have met these requirements through cash generated from operations.

A summary of cash provided by or used in our operating, investing and financing activities is shown in the following table (dollars in thousands).

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

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

Operating Activities.

Cash provided by operating activities increased $12.7 million for the thirty-nine weeks ended November 1, 2025, as compared to the thirty-nine weeks ended November 2, 2024.

This increase in cash from operating activities was primarily the result of increased net income, decreased accounts receivable driven by lower receivables from commercial accounts and an increase in accounts payable and accrued expenses.

These increases were partially offset by higher cash used for inventory purchases as a result of additional tariff costs and accelerated purchases of core products as part of the Company's tariff-mitigation plans.

Cash provided by operating activities decreased $6.6 million for the thirteen weeks ended May 2, 2026, as compared to the thirteen weeks ended May 3, 2025.

This decrease in cash from operatin g activities was primarily driven by increases in prepaid and other assets and receivables from commercial accounts, as well as changes in deferred revenue, accounts payable and accrued expenses, partially offset by higher net income.

Investing Activities.

Cash used in investing activities increased $3.3 million for the thirty-nine weeks ended November 1, 2025, as compared to the thirty-nine weeks ended November 2, 2024.

Cash used in investing activities increased $4.0 million for the thirteen weeks ended May 2, 2026, as compared to the thirteen weeks ended May 3, 2025.

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

Financing Activities.

Cash used in financing activitie s decreased $5.9 million for the thirty-nine weeks ended November 1, 2025, as compared to the thirty-nine weeks ended November 2, 2024.

Thi s decrease in cash used in financing activities during the first thirty-nine weeks of fiscal 2025 was driven by a decrease in the amount utilized to repurchase shares compared to the prior year.

Cash used in financing activitie s increased $6.3 million for the thirteen weeks ended May 2, 2026, as compared to the thirteen weeks ended May 3, 2025.

Thi s increase in cash used in financing activities during the thirteen weeks of fiscal 2026 was driven by an increase in the amount utilized to repurchase shares 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 1, 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 November 1, 2025, our borrowing base was $25.0 million and the Company had no outstanding borrowings as of the end of the quarter.

As of May 2, 2026, we had a consolidated cash balance of $26.2 million, 73% of which w as domiciled within the U.S, after investing $6.9 million in capital projects in the first quarter.

We have a revolving credit and security agreement with PNC Bank, as agent, that provides for a secured revolving loan in an aggregate principal amount of up to $40.0 million, subject to a borrowing base formula.

As of May 2, 2026, borrowings under the agreement would bear interest at (a) a base rate determined under the agreement, or (b) at a rate based on SOFR reference rate, plus in either case a margin based on average undrawn availability as determined in accordance with the agreement.

As of May 2, 2026, our borrowing base was $40.0 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.

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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 thirty-nine weeks ended November 1, 2025 totaled $12.9 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 $83.3 million, an increase of $12.5 million or 18% from the end of the fiscal 2024 third quarter.

The increase in inventory was the result of additional tariff costs and accelerated purchases of core products that began in the second half of fiscal 2024 and continued into the first quarter of fiscal 2025 as part of the Company's tariff-mitigation plans.

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

Capital spending for the thirteen weeks ended May 2, 2026 totaled $6.9 million for information technology projects and new store openings, and we expect to spend approximately $22 to $25 million on capital expenditures in fiscal 2026 .

Total inventory at quarter end was $77.8 million, an increase of $5.5 million or 8% from the end of the fiscal 2025 first quarter.

We are comfortable with the level and composition of our inventory to support customer demand and critical seasonal products.

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

As of November 1, 2025, we had purchase obligations totaling approximately $119.7 million, of whi ch $27.4 million are due in the next 12 months.

As of May 2, 2026, we had purchase obligations totaling approximately $127.0 million, of whi ch $28.6 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 $17.4 million in cash to repurchase 336,041 shares during the thirty-nine weeks ended November 1, 2025under our current September 2024 Stock Repurchase Program, compared to using $23.0 million in cash to repurchase 832,944 shares during the thirty-nine weeks ended November 2, 2024 under our September 2024 Stock Repurchase plan and completed August 2022 program .

We utili zed $11.4 million in cash to repurchase 248,118 shares during the thirteen weeks ended May 2, 2026 under our current September 2024 Stock Repurchase Program, compared to using $4.2 million in cash to repurchase 108,502 shares during the thirteen weeks ended May 3, 2025 under our September 2024 Stock Repurchase Program and completed August 2022 program .

Off-Balance Sheet Arrangements

Inflation continued to impact the Company’s operations during fiscal years 2024 and 2025, most notably through higher store labor costs and increased input prices.

We implemented certain mitigating actions such as further cost reductions and process efficiencies, in addition to selective strategic price adjustments.

We anticipate inflationary pressures to persist throughout fiscal 2025 and beyond, driven by wage growth, tariff and tariff-related costs that extend beyond inventory purchases to broader supply chain and other operational areas.

In August 2025, the U.S.

Court of Appeals for the Federal Circuit ruled that several tariffs imposed under the Trump Administration exceeded presidential authority and were therefore invalid, although the decision remains stayed pending U.S.

Supreme Court review.

This ruling introduces uncertainty regarding the scope and durability of current and future tariff measures.

Even if certain tariffs affecting our Company are ultimately invalidated, we may not be able to fully recover increased costs associated with product delivery and related services from international vendors.

We continue to monitor the impact of inflation on our business operations and may need to adjust pricing strategies as needed to offset cost increases during fiscal 2025 and beyond.

Fluctuations in general price inflation could negatively affect our financial results by adversely impacting material availability, shipping and warehousing expenses, and other operational overhead.

Inflationary pressures may be compounded by elevated transportation costs linked to geopolitical conflicts, including the Russia-Ukraine war, tensions between China and Taiwan, and the Israel-Hamas conflict.

We cannot provide an estimate or range of impact that such inflation may have on our future results of operations.

However, failure to recover increased costs through pricing adjustments or a decline in consumer spending could negatively affect our business, results of operations, financial condition, and cash flows.

The Company continued to experience inflationary pressures during the first quarter of fiscal 2026, primarily through higher store labor, product, freight, transportation and other supply chain costs.

In addition, evolving tariffs and trade policies have increased cost and pricing pressure and created additional uncertainty across our sourcing and supply chain activities.

We have taken actions to help mitigate these pressures, including cost reduction initiatives, process efficiencies, supplier negotiations, sourcing actions and selective pricing and assortment decisions.

We expect inflationary and trade-related pressures to continue during fiscal 2026 and they may persist thereafter.

The ultimate scope, duration and impact of existing and newly announced tariffs, any changes or pauses to such tariffs, and the timing and amount of any related refunds remain uncertain.

These conditions may continue to affect product costs, freight and warehousing expense, other operating costs, customer spending patterns and our gross margins.

In addition, broader geopolitical and macroeconomic developments may further increase transportation and supply chain costs or otherwise adversely affect our business.

Although we continue to monitor these developments and adjust our operating and pricing strategies as appropriate, we cannot reasonably estimate the ultimate impact of inflation, tariffs, trade policy developments or related macroeconomic uncertainty on our future results.

If we are unable to offset these higher costs or if consumer demand weakens, our sales, results of operations, financial condition and cash flows could be adversely affected.

Critical Accounting Estimates

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Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.

Our critical accounting policies and estimates are discussed in and should be read in conjunction with our Annual Report on Form 10-K for the year ended February 1, 2025 as filed with the SEC on April 17, 2025, which includes audited consolidated financial statements for our 2023 and 2022 fiscal years.

Our critical accounting policies and estimates are discussed in and should be read in conjunction with our Annual Report on Form 10-K for the year ended January 31, 2026 as filed with the SEC on April 16, 2026, as amended by Amendment No.

1 as filed with the SEC on April 17, 2026 (the"2025 Form 10-K"), which includes audited consolidated financial statements for our 2025 and 2024 fiscal years.

There have been no material changes to the critical accounting estimates disclosed in the 2025 Form 10-K.

Recent Accounting Pronouncements

See Note 1 to the Condensed Consolidated Financial Statements — Basis of Presentation — Recent Accounting Pronouncements – Adopted in the Current Year as disclosed in our Annual Report on Form 10-K for the year ended February 1, 2025 as filed with the SEC on April 17, 2025.

See Note 1 to the Condensed Consolidated Financial Statements — Basis of Presentation — Recent Accounting Pronouncements – Adopted in the Current Year as disclosed in our 2025 Form 10-K.

Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to our Quantitative and Qualitative Disclosures About Market Risk as disclosed in our Annual Report on Form 10-K for the year ended February 1, 2025 as filed with the SEC on April 17, 2025.

There have been no material changes to our Quantitative and Qualitative Disclosures About Market Risk as disclosed in our 2025 Form 10-K.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis