BBW 10-K & 10-Q changes, risk factors and insider trading

Inflation had an adverse effect on our business operations in fiscal 2024,2025, predominately through rising store labor costs. Although we took actions to mitigate these pressures, such as strategic price increases on highly sought-after products, there can be no assurance that we will be able continue these actions or that they will be successful in the future. We expect the inflationary pressures experienced in fiscal 20242025 to continue in the fiscal year 2025.2026.

Weakened economic conditions, lowered employment levels or recessions in any of our major markets may also significantly impair consumer spending and reduce purchases of our products. Economic conditions may also be negatively impacted by terrorist attacks, wars, geopolitical shifts, and other conflicts, such as the Russia-Ukraine crisis, current Russia-Ukrainegeopolitical crisisenvironment andarising from events in the Israel-HamasMiddle conflictEast that has heightened geopolitical tensions in the Middle East region, as well as natural disasters, increases in commodity prices or labor costs, or the prospect of such events. SuchRecent ahostilities between the United States, Israel and Iran and others have caused significant disruption in the normal flow of oil, refined petroleum products and related commodities, with consequent price rises of oil as well as other non-petroleum products and associated economic volatility. Although the length and impact of the ongoing conflicts and geopolitical turmoil are highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions, changes in consumer purchasing behavior and increased cyber-attacks against U.S. companies. Additionally, any resulting sanctions could adversely affect the global economy and financial markets. A weakened economic and business climate, as well as consumer uncertainty created by such a climate, could harm our revenues and profitability.

Our success and profitability depend not only on consumer demand for our products, but also on our ability to produce and sell those products at costs which allow us to make a profit. Whether due to inflation or other factors,Inflation, tariffs, rising petroleum and material prices, increased transportation and shipping costs, and increased labor costs in the markets in which our products are manufactured and soldsold, or other factors all may further increase the costs we incur to produce and transport our products, which in turn may reduce our margins, reduce our profitability, and harm our business, in particular if we are unable to further adjust prices beyond what we were able to do in fiscal 2024,2025, as discussed above.

ThePolitical developments, including in trade relations, in particular as to the impact of the significant tariffs on products sourced from countries from which we import is expected to have an impact on our business, mainly our cost of goods and profit margin.

TheChanges recentto enactmenttrade policy or the breakdown of tariffstrade by the U.S. government, including a tariff on all imported goods and targeting specific countries, alongrelations with the unpredictabilityUnited ofStates the rates, posesin a country in which we have significant riskoperations, toor sales, or from which we source raw materials, supplies, or through which such raw materials or supplies are delivered could adversely affect our businessbusiness, financial condition, and results of operations. As a company that sources a substantial portion of our inventory from VietnamChina and China, theseVietnam, tariffs are expected togenerally increase theour cost of goods sold, which could adversely affect our profit margins.

Any increased trade barriers or restrictions on global trade imposed by the United States, or further retaliatory trade measures or currency controls taken by other countries in response, could further adversely affect our business, financial condition, and results of operations. We are actively monitoring the situation and exploring strategies to mitigate these risks, including negotiating with suppliers, adjusting our pricing strategies, and seeking tariff exemptions where possible.refunds. However, there can be no assurance that these measures will fully offset the negative impact of the tariffs on our business.

We operate in a highly competitive environment characterized by low barriers to entry. We compete against a diverse group of competitors. Because we have a significant number of mall-based locations, we see our competition primarily as other retailers that compete for prime mall locations, including various apparel, footwear and specialty retailers. As a retailer whose signature product is a stuffed animal that is typically purchased as a toy or gift, we also compete with big box retailers and toy stores, as well as manufacturers that sell plush toys. Since we offer our guests an experience as well as merchandise, we also view our competition as any company that competes for our guests’ time and entertainment dollars, such as movie theaters, restaurants, amusement parks and arcades. In addition, there are several small companies that operate “make your own” teddy bear and stuffed animal experiences in retail stores and kiosks. Although we believe that none of these companies currently offer the breadth and depth of the Build-A-Bear Workshop products and experience, we cannot be certain that they will not compete directly with us in the future.

The profitability of our business depends to a certain degree upon the price of petroleum products, both as a component of the transportation costs for delivery of inventory from our vendors to our stores and as a raw material used in the production of our plush products and stuffing. Volatility in petroleum prices can be due to many external factors that are beyond our control including political, environmental, and economic factors such as hostilities or other conflicts in oil producing areas (including the current Russia-Ukraine conflictconflict, military actions in Iran and tensionsthe current geopolitical environment arising from events in the Middle EastEast, including the hostilities between the United States, Israel and Iran and others), limitations and/or disruptions in refining and pipeline capacity, and worldwide demand for petroleum. We cannot predict the price of crude oil or resulting petroleum products in the future. We may be unable to pass along to our guests the increased costs resulting from higher petroleum prices. Therefore, any such increase could have an adverse impact on our business and profitability. In addition, as discussed above under “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”, these matters could affect broader economic activities beyond the price of petroleum products.

We believe that our success depends in large part upon our ability to continue to attract new and repeat guests with our interactive shopping experience, and our ability to anticipate, gauge and respond in a timely manner to changing consumer preferences, such as online buying, and fashion trends including through licensed relationships. We cannot be certain that there will continue to be a demand for our “make-your-own stuffed animal” interactive experience, including our store design and brand appearance, or for our stuffed animals, related apparel and accessories. A decline in demand for our interactive shopping experience, our stuffed animals, related apparel or accessories, or a misjudgment of consumer preferences, fashion trends or the demand for licensed products, including those that are associated with new movie releases, could have a negative impact on our business, financial condition and results of operations. In addition, negative commentary regarding our company or the products we sell may be posted on social media sites and other platforms at any time and may negatively impact our reputation or business.

Our future success depends, in part, on the popularity and consumer demand for brands of licensors such as Sanrio, Disney, BBC, Pokémon, NBCUniversal, Lucasfilm, Warner Bros., Lucasfilm, ViacomCBS and Nintendo. If we are not able to meet our contractual commitments or are unable to maintain licensing agreements with key brands, our business may be adversely affected. There can be no certainty that our access to licensed brands will continue to be successful or enable us to maintain high levels of sales in the future and the timing of future entertainment projects may not coincide with the timing of previous successes impacting our ability to maintain sales levels. In addition, if we miscalculate the market for our merchandise or the purchasing preferences of our guests, we may be required to sell a significant amount of our inventory at discounted prices or even below cost, thereby adversely affecting our financial condition and profitability.

We lease all of our corporately-managed store locations.locations in the U.S., U.K., Canada and the Republic of Ireland. Most of our store leases contain provisions for base rent plus percentage rent based on sales in excess of an agreed-upon minimum annual sales level. Some store leases only include a provision for a percentage of a store's total sales, instead of a fixed base rent amount. A number of our leases include a termination provision that applies if we do not meet certain sales levels during a specified period, typically in the third to fourth year and the sixth to seventh year of the lease, which may be at either the landlord’s option or ours. Although we have largely shifted our leases in North America to shorter term leases to provide flexibility in aligning stores with market trends, this strategy has risk if we renew leases at a time when commercial rental rates are higher than the rate we could have secured with a longer-term lease. Furthermore, some of our leases contain various restrictions relating to change of control of our company. Our leases also subject us to risks relating to compliance with changing shopping location rules and the exercise of discretion by our landlords on various matters within these locations. We may not be able to maintain or obtain favorable locations within these desirable shopping locations. The terms of new leases may not be as favorable, which could cause an increase in store expenses negatively impacting overall profitability. If we execute termination rights, we may incur expenses and charges associated with those closures that could negatively impact our profitability.

Our leases in the U.K. 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 generally require that base rents can be changed "upwards only" but cannot be reduced if market conditions have deteriorated but can be changed “upwards only.”deteriorated. 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.

Fail ureFailure 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.

Additionally, in the fiscal year 2024,2025, we operated 25 stores located within other retailers’ stores and 138178 stores through our "third-party wholesale"partner-operated model andwhile franchiseesour franchise partners operated 83109 stores. These storesWe have less corporate influence over these stores outside of our corporately-managed locations, and as suchthey are therefore subject to the operational risks of these companies, including, but not limited to, ineffective store operations, labor disputes, and negative publicity, all of which could negatively impact ourthe sales and operating performance.performance in these other locations.

The operation of our stores is dependent on our ability to distribute merchandise to locations throughout the U.S., Canada, and Europe in a timely manner. We own a 350,000-square-foot distribution center in Groveport, Ohio, and rely on this warehouse to receive, store, and distribute merchandise for the majority of our North American locations and to our third-party retail partners. To operate this distribution center, our ability to meet changing labor needs while controlling our costs is subject to external factors such as labor laws, regulations, unemployment levels, prevailing wage rates, and changing demographics. In addition, we rely on third parties to manage all of the warehousing and distribution aspects of our business in the western U.S. and Europe. For example, as noted above, in Europe, we contract with a third-party distribution center in Selby, England under an agreement that endsended in January 2026.2026, but which is currently continuing because neither party terminated the agreement. Any significant interruption in the operation of the distribution centers due to natural disasters or severe weather, events such as fire, accidents, power outages, system failures, public health issues such as pandemics or other health risks, or other unforeseen causes could damage a significant portion of our inventory. These factors may also impair our ability to adequately stock our stores and fulfill e-commerce orders and could decrease our sales and increase our costs associated with our supply chain.

We do not own or operate any factories that produce our plush products, clothing, shoes or accessories. In fiscal 20242025 we purchased 69%75% of our merchandise from five vendors, compared to 73%69% in fiscal 2023.2024. These vendors in turn contract for the production of merchandise with multiple manufacturing facilities. Prior to 2020, over 90% of merchandise received annually was produced in China. However, our efforts to diversify our supply chain reduced China sourcing to 58%51% of merchandise received as production shifted primarily to Vietnam, which provided 38%44% of our merchandise in 2024.fiscal 2025. Our relationships with our vendors generally are on a purchase order basis and do not provide a contractual obligation to provide adequate supply or acceptable pricing on a long-term basis. Our vendors could discontinue sourcing merchandise for us at any time. If any of our significant vendors were to discontinue their relationship with us, or if the factories with which they contract were to suffer a disruption in their production, we may be unable to replace the vendors in a timely manner, which could result in short-term or long-term disruption to our inventory flow or quality of the inventory as we transition our orders to new vendors or factories which could, in turn, disrupt our store operations and have an adverse effect on our business, financial condition and results of operations. Such disruptions may result from public health issues such as a pandemic, weather related events, natural disasters, trade restrictions, tariffs, changes in local laws, work stoppages or slowdowns, shipping capacity constraints, supply or shipping interruptions, geopolitical issues or other factors beyond our control. Additionally, in the event of a significant price increase from these suppliers, we may not be able to find alternative sources of supply in a timely manner or raise prices to offset the increases, which could have an adverse effect on our business, financial condition and results of operations.

We purchase the most of our merchandise directly from manufacturers in foreign countries, primarily in China and Vietnam. In addition to the risks associated with tariffs discussed in "ImpactPolitical developments, including in trade relations, in particular as to the impact of the significant tariffs on products sourced from countries from which we import areis expected to have an impact on our business, mainly our cost of goods and profit margin " above, any event causing a disruption of imports, including the imposition of, increase in amount of or uncertainty regarding import restrictions, taxes or fees, labor strikes or lockouts or pandemics, could adversely affect our business. For example, our vendors in China and Vietnam were temporarily closed for periods of time in 2020, 2021 and 2022 as a result of the COVID pandemic, ceasing production of inventory and supplies. The flow of merchandise from our vendors could also be adversely affected by financial or political instability in any of the countries where the materials or goods we purchase are manufactured, if the instability affects the production or export of merchandise from those countries. We are subject to trade restrictions in the form of tariffs or quotas, or both, applicable to the products we sell and to raw material imported to manufacture those products. Such tariffs or quotas are subject to change.

Additionally, we conduct business globally in many different jurisdictions with currencies other than U.S. dollars. Our results could be negatively impacted by changes or fluctuations in currency exchange rates since we report our consolidated financial results in U.S. dollars. For example, we may purchase products in U.S. dollars but sell them to consumers or to our foreign subsidiaries in local currencies, which exposes us to foreign exchange risk, as described in “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 and foreign currency fluctuations” below.above. In addition, we could experience restrictions on the transfer of funds to and from foreign countries, including potentially negative tax consequences.

As of FebruaryJanuary 1,31, 2025,2026, there were 83109 Build-A-Bear Workshop international franchisedfranchise storeslocations and 138178 international, third-party-operatedpartner-operated locations. We cannot ensure that our international partners will be successful in identifying and securing desirable locations or in operating their stores. International markets frequently have different demographic characteristics, competitive conditions, consumer tastes and discretionary spending patterns than our corporately-managed markets, which may impact the performance of these stores. Additionally, our international partners may experience financing, merchandising and distribution expenses and challenges that are different from those we encounter in our corporately-managed markets. The operations and results of our international partners could be negatively impacted by the economic, public health (such as a pandemic), or political factors in the countries in which they operate or foreign currency fluctuations. These challenges, as well as others, could have a material adverse effect on their business and, in turn, negatively impact our own business, financial condition, and results of operations.

The success of our franchising business depends upon our ability to attract and maintain qualified franchisees with sufficient financial resources to develop and grow their operations and upon the ability of those franchisees to successfully develop and operate their franchisedfranchise stores.locations. Franchisees may not operate stores in a manner consistent with our standards and requirements, may not hire and train qualified managers and other store personnel, may not operate their stores profitably and may not pay amounts due to us. As a result, our franchising operations may not be profitable. Moreover, our brand image and reputation may suffer. If franchisees perform below expectations, we may transfer those agreements to other parties, take over the operations directly or discontinue the franchise agreement. Furthermore, the interests of franchisees might sometimes conflict with our interests. For example, whereas franchisees are concerned with their individual business objectives, we are responsible for ensuring the success of the Build-A-Bear brand and all of our stores. In addition, we have recently terminated our franchise agreement covering IndiaChina resulting in the closure of all12 stores.of 14 stores in the country. This resulted in a total of 109 total franchise locations at the end of the fiscal year.

A key growth initiative for our business is the global expansion of our unique experience locations through international, third-party-operated locations. At the end of fiscal 2024,2025, we had opened more than 30 international locations, and additional locations are expected to be opened in 20252026 and beyond. The success of this strategy is dependent on our partners operating locations in a manner consistent with our standards and requirements, hiring and training qualified personnel, and operating the stores profitably so as to continue the relationship. We do not have direct control over our business partners and may not have visibility into their practices.

Information technology is a critically important part of our business operations. We depend on information systems to process transactions, manage inventory, operate our websites, manage consumer databases, purchase, sell and ship goods on a timely basis, and maintain cost-efficient operations. There is a risk that we could experience a business interruption, theft of information, or reputational damage as a result of a cyber-attack, such as an infiltration of a data center, or data leakage of confidential information either internally or at our third-party providers. We may experience operational problems with our information systems as a result of system failures, system implementation issues, viruses, malicious hackers, sabotage, code anomalies, phishing, smishing, artificial intelligence deepfakes, computer viruses, other malware attacks, ransomware attacks, “Acts of God,” human error or other causes. The nature and scope of threats from artificial intelligence, in particular, represents a new, unpredictable frontier.

While we believe that our security technology and processes are adequate in preventing security breaches and in reducing cyber security risks, given the ever-increasing abilities of those intent on breaching cyber security measures and given our reliance on the security and other efforts of third-party vendors, the total security effort at any point in time may not be completely effective, and any such security breaches and cyber incidents could adversely affect our business. Failure of our systems, including failures due to cyber-attacks that would prevent the ability of systems to function as intended, could cause transaction errors, loss of consumers and sales, and could have negative consequences to us, our employees, and those with whom we do business. In addition, our workforce's combination of remote work, hybrid, and flexible work schedules openingopens us up for cyber-security threats and potential breaches as a result of increased employee usage of networks other than company-managed. Any security breach involving the misappropriation, loss, or other unauthorized disclosure of confidential information could also severely damage our reputation, expose us to the risks of litigation and liability, and harm our business. While we carry insurance that would mitigate the losses to an extent, such insurance may be insufficient to compensate us for potentially significant losses.

The strength and appeal of our brand may alsobe dependaffected onby thehow successwe ofaddress ourcertain environmental, social and governance ("ESG") initiatives,matters, which require company-widecoordination coordinationacross our Company. We face risks related to climate change, resource availability, and alignment.increasing The rise of ESG criteriapublic and reportingregulatory has sparked a debate over its potential to either unite or divide stakeholders by prioritizing and disclosing ethical considerations over traditional financial metrics. We are working to manage risks and costs to us, our licensees and our supply chain that are exposed to the effects of climate change as well as diminishing fossil fuel and water resources. These risks include any increased public focus, including by governmental and non-governmental organizations,focus on climate change and other environmental sustainability matters,topics includingsuch as emissions, packaging and waste, emissions, and land use.waste. We may receivealso increasedface pressure to expand ourESG-related disclosuresdisclosures, inestablish thesegoals areas, makeor commitments, set targets or establish additional goals and take actions to meet them,evolving stakeholder expectations, which could exposeresult usin toincreased market,costs, operational andcomplexity or execution costs or risks.risk. If we choose to expand our ESG disclosures, the metrics we disclose publish—whether they be based on theinternally developed standards we set for ourselves or thoseexternal set by others, frameworks—may influenceaffect our reputationreputation, and the value of our brand. Ourany failure to accurately tracktrack, report or to achieve progress on any goals orstated objectives that we set on a timely basis, or at all, could adversely affect our business, financial performance,condition and growth.results of operations.

Fluctuations in our operating results could reduce our cash flow, or trigger restrictions under our credit agreement, cause useus 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.

From time to time, we have repurchased shares under plans authorized by our Board of Directors, most recently a $100 million program adopted in September 2024. Such programs generally do not require us to repurchase any specific number of shares, and may be modified, suspended, or terminated at any time without prior notice. Shares repurchased under the program will be subsequently retired. If our cash flow decreases as a result of decreased sales, increased expenses, or capital expenditures or other uses of cash, we may not be able to repurchase shares of our common stock at all or at times or in the amounts we desire. As a result, the results of any share repurchase program may not be as beneficial as expected. Additionally, cash flow decreases could cause us to discontinue the recently announced Board of Director-approved quarterly dividend program.program or reduce the dividend relative to prior periods. Our credit agreement restricts our ability to repurchase shares and issue dividends when certain liquidity conditions exist.

Our relatively low market capitalization can cause theThe market price of our common stock has been and may continue to becomebe volatile.

The success of our business depends upon the quality of associates throughout our organization and our ability to attract and retain qualified key employees. The loss of certainthese key employees, change in management for strategic purposes, our inability to attract and retain other qualified key employees or a labor shortage that reduces the pool of qualified candidates could have a material adverse effect on our business, financial condition and results of operations.

Build-A-Bear Workshop, Inc., a Delaware corporation, was formed in 1997 as a mall-based, experiential specialty retailer where children and their families could create their own stuffed animals by participating in the stuffing, fluffing, dressing, accessorizing, and naming of their own teddy bears and other plush toys. 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. Over the last 27 years, with more than 250 million furry friends sold to guests around the world,The Build-A-Bear has become a brand withhas high consumer awareness,awareness and positive affinity, and strongwe retailleverage influence. We are leveraging thisour brand strength to growexpand the footprint of our brick-and-mortar retail footprintexperience beyond traditional mallslocations through a range of store sizes, formatsformats, and locationslocations, 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 third-party-operatedpartner-operated and franchisedfranchise stores,locations, particularly for our international expansion. Our ongoing digital transformation, which touches our e-commerce business, consumer loyalty programprogram, and digital marketing and content, has led to omni-channelomnichannel growth over the past several years. Build-A-Bear's pop-culture and multi-generational appeal have playedplays a key role in growingexpanding our total addressable market beyond children by addingto teens and adults with entertainment and sports licensing, collectible and gifting offerings, as well as by introducing new products and addingto categories beyond plush.

Our consolidated net income was $52.2 million in fiscal 2025 compared to net income of $51.8 million in fiscal 2024 compared to net income ofand $52.8 million in fiscal 2023 and $48.0 million in fiscal 2022.2023. We believe that we have a concept that has broad demographic appeal which, for North American stores open for the entire yearyear, averaged net retail sales per store of $1.2 million in fiscal 2024,2025, 20232024 and 2022.2023.

We ended fiscal 20242025 with no borrowings under our credit agreement and with $27.8$26.8 million in cash, cash equivalents and restricted cash after investing $19.3$25.5 million in capital projects throughout the year. In fiscal 20242025 the company utilized $31.0$27.5 million in cash to repurchase 1,021,004 shares. During the year, the Company repurchased508,945 shares under two separate stock repurchase programs. The company repurchased 758,301 shares utilizing $20.2 million in cash under the Company's $50.0 million stockshare repurchase program that was authorized by itsthe Board of Directors on AugustSeptember 31,11, 20222024 (the "August“September 20222024 Stock Repurchase Program"”). OnThe September 11,2024 2024,Stock theRepurchase Company announced that its Board of DirectorsProgram terminated the August 2022 Stock Repurchase Program and authorized a new share repurchase program of up to $100 million (the “September 2024 Stock Repurchase Program”). The company repurchased 262,703 shares utilizing $10.8 million in cash under the September 2024 Stock Repurchase Program.million. From the end of fiscal 20242025 through April 14, 2025,2026, the Company utilized $4.2$10.7 million to repurchase 108,503231,153 shares under the stock buyback program, leaving $85.0$51.0 million available under the September 2024 Stock Repurchase Program.

On March 13,12, 2024, we announced that2025, our Board of Directors approved a new quarterly dividend program of $0.22 per share representing an increase of 10%, to evolve its strategic use of capital. During fiscal 2024,2025, the company declared and paid quarterly dividends totaling $11.0$ million.11.5 million to shareholders. Additionally, on March 11, 2026, the Board of Directors declared a quarterly cash dividend of $0.22$0.23 per share on theof issued and outstanding common stockstock, representing an increase of the4.5%. company,The whichdividend waswill be paid on April 10,9, 2025,2026, to all stockholders of record as of March 27,26, 2025.2026.

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 sincein 2020recent 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. would have significant 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.

Cost of merchandise sold: Cost of merchandise sold is driven primarily by our retail segment. Cost of merchandise sold – retail includes the cost of the merchandise, including royalties paid to licensors of third party branded merchandise, tariff costs, store occupancy cost, including store depreciation and store asset impairment charges (if not disclosed separately due to materiality) (See Note 6 — "Property and Equipment, net" to the consolidated financial statements for additional accounting information regarding store asset impairment), cost of warehousing and distribution, packaging, stuffing, damages and shortages, and shipping and handling costs incurred in shipment to customers. Retail gross profit is defined as net retail sales less the cost of merchandise sold - retail. For the commercial segment, cost of merchandise includes the cost of merchandise sold to third-party retailers on a wholesale basis for sale within their stores. For the franchise segment, cost of merchandise includes the sale of furniture, fixtures, and supplies to our franchise partners.

During fiscal 2024,2025, our retail business model continued to evolve to address changing shopping patterns by diversifying our locations, formats and geographies. We are updating our store portfolio with our Discovery format, which represented 52%54% of our store base as of FebruaryJanuary 1,31, 2025.2026. During fiscal 2024,2025, we executed eightfive planned net new store openings in North America, with seven being opened under the Discovery format. Temporary locations generally have lease terms of two to eighteen months. These specific sites are designed to capitalize on short-term opportunities. In the future, we 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.

Third-Party RetailPartner-Operated Locations:

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

Through our third-party retailpartner-operated model, there were 138178 stores in operation at the end of fiscal year 20242025 with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry's, and Girl Scouts of the USA. The third-party retailpartner-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 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.

Our first franchiseefranchise location was opened in November 2003. All franchisedfranchise storeslocations generally have similar signage, store layout and merchandise assortments as our corporately-managed stores. As of FebruaryJanuary 1,31, 2025,2026, we had fiveseven master franchise agreements, which typically grant franchise rights for a particular country or group of countries, covering an aggregate of eighttwelve countries.

The number of international, franchisedfranchise storeslocations opened and closed for the periods presented below is summarized as follows:

As of FebruaryJanuary 1,31, 2025,2026, the distribution of franchisedfranchise locations among these countries was as follows:

Our performance continues to reflect the success of our strategy which has allowed us to put the building blocks in place to develop a powerful platform to support our initiatives to deliver consistent profitable growth. We believe our elevated omnichannel business model, which includes a highly profitable e-commerce and experiential retail store base, complimented by diversified revenue streams and disciplined expense and balance sheet management, puts us in a solid position for continued future success. We delivered a full year pre-tax profit of $67.1$67.2 million, which was the highest in our company’s 27-year28-year history. In response to a variety of external pressures including tariffs, changes in consumer shopping habits resulting in the rapid rise of the digital economy and shifting mall traffic patterns, we remained focused on accelerating and expanding our key initiatives by investing in and executing plans to improve operations and profitability. We believe that the majority of our positive performance was driven by the disciplined execution of our strategic initiatives, including leveraging our financial management to invest in growth initiatives, to contribute to an increase in total revenue of $10.3$33.4 million in fiscal 2024.2025. We ended the year with cash and cash equivalents of $27.8$26.8 million with no outstanding borrowings on our credit facility. During fiscal 2024,2025, the Company returned $42.0$39.0 million to shareholders through $31.0$27.5 million in share repurchases and $11.0$11.5 million in dividends.

Fiscal 2024 hadhas 52a weeks52-week fiscal compared to fiscal 2023 which was impacted by an additional week as it was a 53-week period.

Total revenues. Net retail sales were $460.3$ 460.3 million for fiscal 2024, compared to $456.2$ 456.2 million for fiscal 2023, an increase of $4.2$ 4.2 million or 0.9%, compared to the prior year. The components of this increase are as follows:

Commercial revenue was $31.4 million for fiscal 2024 compared to $25.4 million for fiscal 2023, an increase of $6.0 million or 23.5%, primarily due to increased sales volume from our commercial accounts through our third-party retailpartner-operated model.

Interest expense (income),income, net. For fiscal 2024, we had $0.9 million of interest income compared to $0.9 million of interest income in fiscal 2023.

We believe that earnings before interest, taxes, depreciation, and amortization ("EBITDA") provides meaningful information about our operational efficiency by excluding the impact of differences in tax jurisdictions and structures, debt levels, and capital investment. Additionally, this measure is the metric used for portions of the Company's incentive compensation structure. This measure is not in accordance with, or an alternative to, GAAP. The most comparable GAAP measure is income before income taxes, or pre-tax income. EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measures for comparisons with other companies. The following table sets forth, for the periods indicated, the components of EBITDA (dollars in millionsthousands):

EBITDA for fiscal 2025 was $81.4 million, compared to $81.1 million for fiscal 2024 was $81.1 million, compared toand $79.1 million for fiscal 2023 and $74.4 million in fiscal 2022.2023. The increase of $0.3 million in fiscal 2025 and $2.0 million in fiscal 2024 waswere driven by retail and commercial margins partially offset by higher SG&ASGA expenses. The increase in fiscal 2023 was driven by lower freight expense, leverage of warehouse costs, and the impact of the 53rd week in fiscal 2023.

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 are shown in the following table (dollars in thousands):

Operating Activities. Cash flows provided by operating activities were $47.1$65.1 million, $64.3$47.1 million and $47.3$64.3 million in fiscal years 2024,2025, 20232024 and 2022,2023, respectively. Cash flows from operating activities increased in fiscal 2025 as compared to fiscal 2024 primarily due to higher net income along with lower prepaid and other assets 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 flows from operating activities decreased in fiscal 2024 as compared to fiscal 2023 primarily driven by increased cash spent on inventory purchases in the second half of fiscal 2024 in anticipation of the uncertainty in cost due to potential tariffs, higher accounts receivable resulting from higher commercial revenue and decreased payables and accrued expenses. Cash flows from operating activities increased in fiscal 2023 as compared to fiscal 2022 primarily driven by a decrease in cash spent on inventory purchases and increased sales volume, resulting in higher net income.

Financing Activities. Financing activities used cash of $40.7 million in fiscal 2025, $44.2 million in fiscal 2024,2024 and $43.9 million in fiscal 20232023. andCash $25.1used millionin financing activities in fiscal 2022.2025 decreased when compared to fiscal 2024 driven by a decrease in the amount utilized to repurchase shares compared to the prior year. Cash used in financing activities in fiscal 2024 increased slightly when compared to fiscal 2023 due to increased stock repurchases offset by lower dividends. Cash used in financing activities in fiscal 2023 increased as compared to fiscal 2022, driven primarily by the repurchases of our common stock for $20.5 million throughout fiscal 2023 and dividends paid of $22.1 million.

Capital Resources. As of FebruaryJanuary 1,31, 2025,2026, we had a cash balance of $27.8$26.8 million, of which 79%$20.8 million was domiciled within the U.S, after investing $19.3$25.5 million in capital projects throughout the year.

We have a new revolving credit and security agreement with PNC Bank, as agent, executed on December 31, 2025, that provides for a secured revolving loan in aggregate principal of up to $25.0$ 40.0 million, subject to a borrowing base formula. As of FebruaryJanuary 1,31, 2025,2026, 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 February 3,1, 2024,2025, we had a borrowing base of $25.0 million. As of FebruaryJanuary 1,31, 2025,2026, we have a borrowing base of $40.0 million and had no outstanding borrowings.

DuringIn fiscal 2024,2025 wethe company utilized $31.0$27.5 million in cash to repurchase 1,021,004508,945 shares under the bothshare repurchase program that was authorized by the Board of Directors on September 11, 2024 (the “September 2024 Stock Repurchase Program”). The September 2024 Stock Repurchase Program terminated the August 2022 Stock Repurchase Program and Septemberauthorized 2024a Stocknew Repurchaseshare Program.repurchase Sinceprogram of up to $100 million. From the end of fiscal 20242025 through April 14, 2025,2026, the Company utilized $4.2$10.7 million to repurchase 108,503231,153 shares under the stock buyback program, leaving $85.0$51.0 million available under the September 2024 Stock Repurchase Program.

OnIn Marchfiscal 13, 2024,2025, the Company announced the initiation ofdeclared a quarterly dividend programof and$0.22 per share, representing an increase of 10% from the year before, during the first, second, third and fourth quarters of fiscal 2024, the Company declared cash dividends of $0.20 per share,quarters, totaling $2.9 million, $2.7$2.9 million, $2.7$2.9 million and $2.7$2.8 million,million respectively. Additionally, on March 11, 2026, the Board of Directors declared a quarterly cash dividend of $0.22$0.23 per share on theof issued and outstanding common stockstock, representing an increase of the4.5%. Company,The whichdividend waswill be paid on April 10,9, 2025,2026, to all stockholders of record as of March 27,26, 2025.2026.

Capital spending in fiscal 20242025 totaled $19.3$25.5 million and was primarily used to support our ongoing digital initiativesinitiatives, and current and future new store openings.

We have various contractual or other obligations, including operating lease commitments and obligations under deferred compensation plans. Additional information is provided in the notes to our consolidated financial statements. As of FebruaryJanuary 1,31, 2025,2026, we had purchasecontractual obligations totaling approximately $98.3$128.6 million, of which $27.0$28.9 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 have no off-balance sheet arrangements as of FebruaryJanuary 1,31, 2025.2026.

As of MayAugust 2,1, 2026, the Company had 669674 global locations through a combination of its corporately-managed, partner-operated, and franchise models. This reflects 376379 corporately-managed locations, including 334337 stores in the United States (“U.S.”) and Canada and 42 stores in the United Kingdom ("U.K.") and the Republic of Ireland, 181177 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 112118 international franchise locations ,locations, all under the Build-A-Bear Workshop brand. In addition to these stores,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. For the 2026 fiscal year to2026 date,year-to-date, the Company hadachieved net new unit growth of 712 experience locations, comprisedcomprising of onefour corporately managed location, 3 partner-operated locations,locations and 3nine international franchise locations.locations, partially offset by one fewer partner-operated location compared with the prior fiscal year.

Selected financial data attributable to each segment for the thirteen and twenty-six weeks ended MayAugust 2,1, 2026 and MayAugust 3,2, 2025 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Global trade policy continues to evolve and the ultimate impact of recent developments with respect to U.S. tariffs is unclear. OnDuring Februarythe 20,first quarter of fiscal 2026, the U.S.following Supreme Court issuedrulings a ruling striking down certainregarding 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 iswas entitled to a tariff refund ofrecover approximately $13.2 million,million whichof waspreviously recordedpaid intariffs. receivables, net on the condensed consolidated balance sheet. For the thirteen weeks ended May 2, 2026, theThe Company recorded the related receivable, recognized a $10.4 million benefit for these tariffs in cost of merchandise sold-retailsold-retail, onincluding the condensed consolidated statements of operations and comprehensive income,approximately $7.0 million of which related to prior fiscal year costs, and reduced the carrying value of inventory by approximately $2.8 million onfor thetariffs condensedattributable consolidated balance sheet as of May 2, 2026. The relatedto inventory withremaining tariffson ishand. expected to be substantially sold inDuring the second fiscal quarter of 2026.fiscal 2026, the Company collected the refund including interest and recognized the remaining inventory-related benefit as the underlying inventory was sold. As a result, the Company has substantially completed recognition of the financial statement impacts associated with the IEEPA tariff refund.

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. continuescontinue 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.

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 experienceexperiencial 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.

As of MayAugust 2,1, 2026, 53%55% 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. The future of our retail store fleet may include expansion into more non-traditional locations, including concourse format shopsshops, and by expansion in other locations outside of traditional malls.

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

Through our partner-operated model, there were 181177 stores in operation at the end of the firstsecond 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.

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 MayAugust 2,1, 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 areis summarized as follows:

Thirteen weeks ended MayAugust 2,1, 2026 compared to thirteen weeks ended MayAugust 3,2, 2025

Total revenues. Consolidated revenues decreased $3.1$9.0 million or 2.4%,7.2%, primarily driven by a $6.1$8.1 million or 5.1%7.1% decrease in Netnet Retailretail sales partially offset byand a $3.3$0.9 million or 44%9.0% increasedecrease in Commercialcombined commercial and international franchising revenue when compared to the firstsecond fiscal quarter of 2025. The decrease in net retail sales was driven by lower sales at existing stores,stores and decreased e-commerce demand offset by sales at new stores. The increaseddecrease in commercial revenue was due to higherlower sales tovolume from our wholesale customers,customers includingthrough salesour partner-operated retail model. The decrease in international franchising revenue was due to new wholesale customers resulting from a net increasetiming of 54product partner-operated locations since the first quarter of 2025.shipments.

Net retail sales for the thirteen weeks ended MayAugust 2,1, 2026 were $113.5$106.5 million, compared to $119.6$114.6 million for the thirteen weeks ended MayAugust 3,2, 2025. The components of the performance are as follows (dollars in thousands):

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

Commercial revenue was $10.9$8.1 million for the thirteen weeks ended MayAugust 2,1, 2026 compared to $7.6$8.6 million for the thirteen weeks ended MayAugust 3,2, 2025. The $3.3$0.5 million increasedecrease iswas primarily due to increasedlower sales volume from our wholesale accounts through our partner-operated retail model.accounts.

International franchising revenue was $0.9$0.7 million for the thirteen weeks ended MayAugust 2,1, 2026 compared to $1.2$1.0 million for the thirteen weeks ended MayAugust 3,2, 2025. The $0.3 million decrease iswas primarily due to timinglower ofroyalties productand shipments.other sales to franchisees.

Retail gross margin. Retail gross margin dollars increaseddecreased $5.1$8.5 million to $73.1$57.6 million from $68.0$66.1 million for the thirteen weeks ended MayAugust 3,2, 2025. The retail gross margin rate increaseddecreased 750360 basis points compared to the prior year,year includingprimarily a 560 basis-point benefit from the $7.0 million IEEPA tariff refund relateddue to prioroccupancy fiscalcost yeardeleverage costs,and withincreased thepromotional remaining 190 basis-points primarily driven by selective price increases.activity.

Selling, general and administrative. SG&A expenses were $56.1$51.4 million, or 44.8%44.6% of consolidated revenue, for the thirteen weeks ended MayAugust 2,1, 2026, compared to $53.6$56.4 million, or 41.7%45.4% of consolidated revenue, for the thirteen weeks ended MayAugust 3,2, 2025. The increasedecrease was primarily driven by higherlower totalincentive compensation costs, general inflationary pressures, and longer-range investments.compensation.

Interest income, net. Interest income was $0.1$0.6 million for the thirteen weeks ended MayAugust 2,1, 2026, compared to interest income of $0.2 million for the thirteen weeks ended MayAugust 3,2, 2025. The increase was driven by higher interest income from IEEPA tariff refunds.

Provision for income taxes. Income tax expense was $5.6$2.9 million with a tax rate of 23.4%24.7% for the thirteen weeks ended MayAugust 2,1, 2026, as compared to $4.3$3.0 million with a tax rate of 22.0%19.3% for the thirteen weeks ended MayAugust 3,2, 2025. In the firstsecond 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 deduction (formerly foreign derived intangible income). In the firstsecond 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 vestingvesting, the foreign-derived intangible income deduction and foreigndiscrete derivedbenefits intangiblerelated income.to settlement of a prior period tax position. In addition, in the firstsecond quarter of fiscal 2026 and 2025, the Company remains in a full valuation allowance in certain foreign jurisdictions.

EBITDA for the thirteen weeks ended MayAugust 2,1, 2026 increaseddecreased $4.6$3.6 million, or 20.0%19.1% to $27.7$15.2 million from $23.1$18.8 million for the thirteen weeks ended MayAugust 3,2, 2025. The increasedecrease was driven by higherlower gross profit resulting from increasedoccupancy retailcost deleverage and commercialincreased marginspromotional activity, partially offset by higherlower SG&A expenses.expenses, Theprimarily increasedue to retailreduced marginincentive primarily resulted from the benefit of IEEPA tariff refund, $7 million of which related to prior fiscal year costs.compensation.

InvestingOperating Activities. Cash usedprovided inby investingoperating activities increaseddecreased $4.0$5.9 million for the thirteentwenty-six weeks ended MayAugust 2,1, 2026, as compared to the thirteentwenty-six weeks ended MayAugust 3,2, 2025. The increasedecrease in cash usedfrom in investingoperating activities was primarily driven by increasedchanges spendingin onworking capital expenditures.balances.

FinancingInvesting Activities. Cash used in financinginvesting activities increased $6.3$9.1 million for the thirteentwenty-six weeks ended MayAugust 2,1, 2026, as compared to the thirteentwenty-six weeks ended MayAugust 3,2, 2025. ThisThe increase in cash used in financinginvesting activities duringwas the thirteen weeks of fiscal 2026 wasprimarily driven by anincreased increasespending inon thecapital amount utilized to repurchase shares compared to the prior year.expenditures.

Capital Resources: As of MayAugust 2,1, 2026, we had a consolidated cash balance of $26.2$14.0 million, 73%66% of which was domiciled within the U.S,U.S., after investing $6.9$15.4 million in capital projects in thefiscal first quarter.2026.

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 MayAugust 2,1, 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 MayAugust 2,1, 2026, our borrowing base was $40.0 million and the Company had noapproximately $39.5 million of available borrowing base, net of a $0.5 million outstanding borrowingsletter of credit, and no amounts were outstanding under the agreement as of the end of the quarter.

Capital spending for the thirteentwenty-six weeks ended MayAugust 2,1, 2026 totaled $6.9$15.4 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$81.1 million, ana increasedecrease of $5.5$0.6 million or 8%1% from the end of the fiscal 2025 firstsecond 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 MayAugust 2,1, 2026, we had purchase obligations totaling approximately $127.0$126.8 million, of which $28.6$28.4 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 utilized $11.4$17.0 million in cash to repurchase 248,118403,236 shares during the thirteentwenty-six weeks ended MayAugust 2,1, 2026 under our current September 2024 Stock Repurchase Program, compared to using $4.2$7.3 million in cash to repurchase 108,502167,585 shares during the thirteentwenty-six weeks ended MayAugust 3,2, 2025 under our September 2024 Stock Repurchase Program and completed August 2022 program.

The Company continued to experience inflationary pressures during the first quarterhalf 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.