Build-A-Bear's Q3 Net Income Dips Despite Revenue Growth

TL;DR

**BBW's Q3 profit dip is a red flag despite revenue growth; watch inventory and lease commitments closely.**

AI Summary

BUILD-A-BEAR WORKSHOP INC (BBW) reported total revenues of $122.679 million for the thirteen weeks ended November 1, 2025, a 2.7% increase from $119.430 million in the prior-year period. For the thirty-nine weeks ended November 1, 2025, total revenues grew to $375.321 million, up 8.5% from $345.958 million in the same period last year. Net income for the thirteen-week period decreased to $8.122 million ($0.62 diluted EPS) from $9.870 million ($0.73 diluted EPS) year-over-year, while the thirty-nine-week net income increased to $35.808 million ($2.73 diluted EPS) from $30.107 million ($2.20 diluted EPS). The company's direct-to-consumer segment accounted for 92% of consolidated revenue for the third quarter of fiscal 2025. Key changes include an increase in operating lease right-of-use assets to $111.722 million from $91.268 million, reflecting new store leases and longer-term extensions. Inventories, net, rose to $83.275 million from $70.774 million. Risks include potential significant impacts from changes in gift card breakage rates, as a hypothetical 1% change in fiscal 2024 would have altered breakage revenue by $1.1 million. The strategic outlook involves maintaining lease optionality and continued investment in entertainment production assets, which increased to $4.715 million.

Why It Matters

This filing reveals a mixed performance for Build-A-Bear, with strong revenue growth over the nine-month period but a notable dip in Q3 net income. For investors, the increased operating lease assets and inventory levels suggest expansion and potential future sales, but the Q3 profit decline warrants scrutiny. Employees might see stability given the company's growth, while customers benefit from new store locations and continued product development, including entertainment assets. In a competitive retail landscape, Build-A-Bear's focus on its direct-to-consumer segment (92% of Q3 revenue) and flexible lease structures could provide a competitive edge, but managing inventory and profitability will be key.

Risk Assessment

Risk Level: medium — The risk level is medium due to the decrease in net income for the thirteen weeks ended November 1, 2025, to $8.122 million from $9.870 million in the prior year, despite revenue growth. Additionally, the company highlights that changes to gift card breakage estimates could have a 'significant impact' on future revenue, with a hypothetical 1% change in fiscal 2024 affecting breakage revenue by $1.1 million.

Analyst Insight

Investors should monitor BBW's Q4 performance closely for signs of profit recovery and efficient inventory management, given the increase in inventories to $83.275 million. Evaluate the impact of new store leases and longer-term extensions on future profitability and cash flow, as operating lease right-of-use assets increased to $111.722 million.

Financial Highlights

revenue

$122.679M

total Assets

$326.499M

net Income

$8.122M

eps

$0.62

gross Margin

53.66%

cash Position

$27.737M

revenue Growth

+2.7%

Revenue Breakdown

Key Numbers

• $122.679M — Total Revenues (Q3 2025) (Increased 2.7% from $119.430M in Q3 2024)
• $8.122M — Net Income (Q3 2025) (Decreased from $9.870M in Q3 2024)
• $375.321M — Total Revenues (YTD 2025) (Increased 8.5% from $345.958M in YTD 2024)
• $35.808M — Net Income (YTD 2025) (Increased from $30.107M in YTD 2024)
• 92% — Direct-to-Consumer Revenue Share (Represents 92% of consolidated revenue for Q3 2025)
• $111.722M — Operating Lease Right-of-Use Asset (Increased from $91.268M as of November 2, 2024)
• $83.275M — Inventories, net (Increased from $70.774M as of November 2, 2024)
• $0.62 — Diluted EPS (Q3 2025) (Decreased from $0.73 in Q3 2024)
• $2.73 — Diluted EPS (YTD 2025) (Increased from $2.20 in YTD 2024)
• $1.1M — Gift Card Breakage Sensitivity (Hypothetical 1% change in fiscal 2024 breakage rate)

Key Players & Entities

• BUILD-A-BEAR WORKSHOP INC (company) — Registrant
• SEC (regulator) — United States Securities and Exchange Commission
• New York Stock Exchange (regulator) — Exchange where common stock is registered
• HMRC (regulator) — UK's customs authority
• $122.679 million (dollar_amount) — Total revenues for thirteen weeks ended November 1, 2025
• $119.430 million (dollar_amount) — Total revenues for thirteen weeks ended November 2, 2024
• $8.122 million (dollar_amount) — Net income for thirteen weeks ended November 1, 2025
• $9.870 million (dollar_amount) — Net income for thirteen weeks ended November 2, 2024
• $35.808 million (dollar_amount) — Net income for thirty-nine weeks ended November 1, 2025
• $30.107 million (dollar_amount) — Net income for thirty-nine weeks ended November 2, 2024

FAQ

Risk Factors

• Gift Card Breakage Rate Sensitivity [medium — financial]: Changes in gift card breakage rates can significantly impact revenue. A hypothetical 1% change in fiscal 2024 would have altered breakage revenue by $1.1 million, highlighting a material sensitivity.
• Inventory Management [medium — operational]: Inventories increased to $83.275 million from $70.774 million year-over-year. Managing this higher inventory level efficiently is crucial to avoid obsolescence and carrying costs.
• Lease Liability Growth [medium — financial]: Operating lease right-of-use assets increased to $111.722 million from $91.268 million, reflecting new leases and extensions. This growth in lease obligations requires careful management of future cash flows.
• Direct-to-Consumer Reliance [medium — market]: The direct-to-consumer segment accounts for 92% of consolidated revenue in Q3 2025. Over-reliance on this channel could expose the company to risks associated with shifts in consumer behavior or online retail challenges.

Industry Context

The toy and entertainment retail sector is highly competitive, influenced by seasonality, evolving consumer preferences, and the success of intellectual property. Companies like Build-A-Bear rely on unique experiential retail and strong brand partnerships to differentiate themselves.

Regulatory Implications

The company must adhere to accounting standards for revenue recognition, particularly concerning gift cards and deferred revenue. Compliance with lease accounting standards (ASC 842) is also critical given the significant operating lease assets and liabilities.

What Investors Should Do

1. Monitor inventory levels and turnover ratios.
2. Analyze the growth drivers of the commercial and international franchising segments.
3. Assess the impact of lease obligations on future cash flows.

Glossary

Operating lease right-of-use asset

An asset representing the lessee's right to use an underlying asset for the lease term, recognized under ASC 842. (The significant increase to $111.722 million indicates expansion or longer-term commitments for store locations.)

Gift card breakage rates

The rate at which unredeemed gift card balances expire or are deemed unlikely to be redeemed by the customer. (Changes in this rate can materially impact revenue recognition, as highlighted by the $1.1 million sensitivity.)

Direct-to-consumer (DTC)

Sales channels where a company sells its products or services directly to end consumers, bypassing intermediaries. (This segment's dominance (92% of Q3 revenue) is a key characteristic of BBW's sales strategy.)

Diluted EPS

Earnings per share calculated by dividing net income by the total number of diluted common shares outstanding. (Provides a measure of profitability on a per-share basis, reflecting potential dilution from stock options or convertible securities.)

Year-Over-Year Comparison

Build-A-Bear Workshop reported a 2.7% increase in total revenues for the thirteen weeks ended November 1, 2025, reaching $122.679 million, compared to $119.430 million in the prior year. However, net income decreased to $8.122 million from $9.870 million, leading to lower diluted EPS of $0.62 versus $0.73. The balance sheet shows a notable increase in operating lease right-of-use assets to $111.722 million and inventories to $83.275 million, suggesting expansion and potentially higher carrying costs.

Filing Documents

• bbw20251101_10q.htm (10-Q) — 1225KB
• ex_863164.htm (EX-31.1) — 15KB
• ex_863165.htm (EX-31.2) — 14KB
• ex_863166.htm (EX-32.1) — 5KB
• ex_863167.htm (EX-32.2) — 5KB
• 0001437749-25-037492.txt ( ) — 6161KB
• bbw-20251101.xsd (EX-101.SCH) — 43KB
• bbw-20251101_cal.xml (EX-101.CAL) — 41KB
• bbw-20251101_def.xml (EX-101.DEF) — 272KB
• bbw-20251101_lab.xml (EX-101.LAB) — 264KB
• bbw-20251101_pre.xml (EX-101.PRE) — 303KB
• bbw20251101_10q_htm.xml (XML) — 1298KB

Financial Information

Part I Financial Information Item 1.

Financial Statements (Unaudited)

Financial Statements (Unaudited) 4 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Operations and Comprehensive Income 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 26 Item 4.

Controls and Procedures

Controls and Procedures 26

Other Information

Part II Other Information Item 1A.

Risk Factors

Risk Factors 27 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27 Item 5. Other Information 26 Item 6. Exhibits 28

Signatures

Signatures 29 3 Table of Contents

-FINANCIAL INFORMATION

PART I -FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share and per share data) November 1, February 1, November 2, 2025 2025 2024 (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 27,737 $ 27,758 $ 28,955 Inventories, net 83,275 69,775 70,774 Receivables, net 15,566 16,096 13,461 Prepaid expenses and other current assets 11,568 12,669 11,982 Total current assets 138,146 126,298 125,172 Operating lease right-of-use asset 111,722 90,200 91,268 Property and equipment, net 62,287 59,761 54,498 Deferred tax assets 7,916 7,596 8,638 Other assets, net 6,428 6,101 6,286 Total Assets $ 326,499 $ 289,956 $ 285,862 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 17,442 $ 16,538 $ 18,403 Accrued expenses 19,853 16,209 19,994 Operating lease liability short term 27,271 26,841 28,832 Gift cards and customer deposits 14,163 15,791 15,697 Deferred revenue and other 4,792 4,015 3,498 Total current liabilities 83,521 79,394 86,424 Operating lease liability long term 90,943 70,155 69,518 Other long-term liabilities 1,418 1,325 1,347 Stockholders' equity: Preferred stock, par value $ 0.01 , Shares authorized: 15,000,000 ; No shares issued or outstanding at November 1, 2025, February 1, 2025 and November 2, 2024 - - - Common stock, par value $ 0.01 , Shares authorized: 50,000,000 ; Issued and outstanding: 12,992,650 , 13,257,131 , and 13,445,191 shares, respectively 130 133 135 Additional paid-in capital 61,339 61,987 62,511 Accumulated other comprehensive loss ( 11,548 ) ( 12,554 ) ( 11,811 ) Retained earnings 100,696 89,516 77,738 Total stockholders' equity 150,617 139,082 128,573 Total Liabilities and Stockholders' Equity $ 326,499 $ 289,956 $ 285,862 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents

View Full Filing

View this 10-Q filing on SEC EDGAR