BUILD A BEAR WORKSHOP : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

Cautionary Notice Regarding Forward-Looking Statements

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties, and we undertake no obligation to update these statements except
as required by the federal securities laws. 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 January 30, 2021, as filed with the SEC, and include the following:

? our business, operations and financial results have been and will continue to

be negatively affected by the pandemic including the temporary closure of

retail store locations or occupancy restrictions, which may be reinstated, all

of which continues to fluctuate on a localized basis, presenting ongoing

uncertainty relating to the anticipated duration and scope of the pandemic in

areas in which we operate, as well as the restrictions imposed by federal,

state, and local governments in response to the pandemic;

? any sustained decline in general global economic conditions, caused by the

COVID-19 pandemic or otherwise, could lead to disproportionately reduced

consumer demand for our products, including those sold by third-party

retailers, which represent relatively discretionary spending, would cause an

adverse effect on our liquidity and profitability;

? we rely on a few global supply chain vendors to supply substantially all of our

merchandise, and significant price increases or disruption in their ability to

deliver merchandise, such as was experienced due to periodic COVID-related

factory closures, have impaired, and may in the future more significantly

impair, our ability to source products and supply inventory to our stores and

have previously caused us and in the future may cause us to carry higher levels

of inventory than we have on a historical basis;

? we depend upon the shopping malls and tourist locations in which our

corporately-managed stores and third-party retail locations are situated to

attract guests and a decline in consumer traffic, or if such consumer traffic

does not return to levels that we saw prior to the pandemic, or if such return

is not sustained due to the spikes in the COVID-19 infection rates, could

adversely affect our financial performance and profitability. In addition, some

of our third-party retailers may be subject to different market conditions as a

result of the pandemic;

? in connection with the reopening of our stores, we have modified our

interactive shopping experience in order to comply with recommended social

distancing and sanitation practices. These modifications could have a negative

impact on the appeal of our interactive shopping experience, reduce guest

traffic to our stores, and decrease the volume of guests that may be able to

enjoy our interactive shopping experience which could adversely impact our

ability to operate our stores profitably;

? we may experience store closures in shopping malls and tourist locations and

other impacts to our business resulting from civil disturbances;

? we believe the hands-on and interactive nature of our store and high touch

service model result in guests forming an emotional connection with our brand,

which in turn contributes to the success of our ecommerce platform and drives

repeat customer transactions; if the revised experiences we are offering do not

create the same guest affinity for our brand, it may adversely affect the value

of our brand;

? birthdays and other special occasions have historically been a key driver for

store traffic, and our inability to host such events due to pandemic

restrictions or if our guests are not willing to hold such events at our stores

may adversely affect store performance and our overall profitability;

? if we are unable to generate interest in and demand for our interactive retail

experience and products, including being able to adjust that experience

consistent with our guests' expectations as the general retail economy emerges

from the restrictions imposed by the pandemic, and to otherwise identify and

respond to consumer preferences in a timely manner, our sales, financial

condition and profitability could be adversely affected;

? some of our licensed products are based on feature films with planned

theatrical launches; given that the pandemic has negatively impacted theaters

and delayed movie releases, the portion of our business associated with these

films has been and could continue to be negatively affected;

? we may be unable to leverage the flexibility within our existing real estate

portfolio to capitalize on future real estate opportunities over the near and

intermediate term as our leases come up for renewal, and there may be other

costs and risks related to a brick-and-mortar retail store model such as a lack

of available retail store sites on terms acceptable to us as a result;

? consumer interests 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 key products and services;

? we are subject to a number of risks related to disruptions, failures or

security breaches of our information technology infrastructure. If we

improperly obtain or are unable to protect our data or violate privacy or

security laws such as the GDPR or the General Data Protection Regulation, the

CCPA or the California Privacy Rights Act (as adopted), or expectations, we

    could be subject to liability as well as damage to our reputation;




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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;

? we are subject to risks associated with technology and digital operations;

? we may not be able to evolve our store locations over time to align with market

trends, successfully diversify our store models and formats in accordance with

our strategic goals or otherwise effectively manage our overall portfolio of

stores which could adversely affect our ability to grow and could significantly

harm our profitability;

? our company-owned distribution center which services the majority of our stores

in North America and our third-party distribution center providers used in the

western United States and Europe may experience disruptions in their ability to

support our stores or may operate inefficiently;

? 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, tariffs and foreign

currency fluctuations;

? if we are unable to effectively manage our international franchises, attract

new franchises or if the laws relating to our international franchises change,

our growth and profitability could be adversely affected and we could be

exposed to additional liability;

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

profitably;

? we may fail to renew, register or otherwise protect our trademarks or other

intellectual property and may be sued by third parties for infringement or,

misappropriation of their proprietary rights, which could be costly, distract

our management and personnel and which could result in the diminution in value

of our trademarks and other important intellectual property;

? we may suffer negative publicity or be sued if the manufacturers of our

merchandise or of Build-A-Bear branded merchandise sold by our licensees ship

any products that do not meet current safety standards or production

requirements or if such products are recalled or cause injuries;

? we may suffer negative publicity or be sued if the manufacturers of our

merchandise violate labor laws or engage in practices that consumers believe

are unethical;

? our profitability could be adversely affected by fluctuations in petroleum

products prices;

? our business may be adversely impacted at any time by a significant variety of

competitive threats;

? we may suffer negative publicity or a decrease in sales or profitability if the

products from other companies that we sell in our stores do not meet our

quality standards or fail to achieve our sales expectations;

? we may be unsuccessful in engaging in various strategic transactions, which may

negatively affect our financial condition and profitability;

? fluctuations in our quarterly results of operations could cause the price of

our common stock to substantially decline;

? the market price of our common stock is subject to volatility, which could in

turn attract the interest of activist shareholders; and

? our certificate of incorporation and bylaws and Delaware law contain provisions

that may prevent or frustrate attempts to replace or remove our current

management by our stockholders, even if such replacement or removal may be in

         our stockholders' best interests.




Overview



We are the only global company that offers an interactive "make your own stuffed
animal" retail entertainment experience under the Build-A-Bear Workshop brand,
in which guests participate in the stuffing, dressing, accessorizing and naming
of their own teddy bears and other stuffed animals. As of July 31, 2021, we
had 352 corporately-managed stores globally and had 74 internationally
franchised stores under the Build-A-Bear Workshop brand. In addition to these
stores, we sell products on our company-owned e-commerce sites, our franchisees
sell products through sites that they manage and other third parties sell
products on their sites under wholesale agreements.



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We operate in three segments that share the same infrastructure, including management, systems, merchandising and marketing, and generate revenues as follows:

• Direct-to-Consumer ("DTC") - Corporately-managed retail stores located in the

U.S., Canada, the U.K., and Ireland and two e-commerce sites;

• Commercial - Transactions with other businesses, mainly comprised of wholesale

product sales to third-party retailers and licensing our intellectual property,

including entertainment properties, for third-party use; and

• International franchising - Royalties as well as development fees and the sales

from products and fixtures from other international operations under franchise

    agreements.




Selected financial data attributable to each segment for the thirteen and
twenty-six weeks ended July 31, 2021 and August 1, 2020 are set forth in the
notes to our condensed consolidated financial statements included elsewhere in
this Quarterly Report on Form 10-Q.

COVID-19 and Business Update

At the beginning of fiscal 2021, our United States store portfolio was open and
operating while our stores in the United Kingdom and Canada remained temporarily
closed. In April 2021, stores in the United Kingdom reopened as the government
lifted lockdown restrictions resulting in almost all of our stores operating as
the end of the 2021 first fiscal quarter with the remaining stores in the United
Kingdom and Ireland opening in the second fiscal quarter and ending the quarter
with all stores open. The majority of our Canadian stores remained temporarily
closed to begin the second quarter with the majority reopening in June 2021 and
with all stores ending the second fiscal quarter open. Our year-over-year
results discussed below are, and we expect for the remainder of 2021 will be,
impacted by prior year store closures and operating hour reductions as a result
of the pandemic.



While we expect to see continued evolution of consumer shopping patterns and
preferences in the balance of the year, we believe we have built
the infrastructure to respond with greater agility to deal with potential
uncertainty and we expect to deliver growth in total revenues and profit in
fiscal 2021 compared tofiscal 2020 and fiscal 2019. While we believe that we
have seen benefit from pandemic-driven factors such as pent-up demand and
stimulus packages, we believe that the initiatives and investments that were put
in place prior to the pandemic, and in many cases accelerated during the
pandemic, are driving improved results, which we expect to continue. We remain
focused on our strategic priorities for the year which are centered primarily on
three key areas:

• Further acceleration of our digital transformation including content and

entertainment initiatives. We are intent on building our business with more

effective use of technology and improved and enhanced fulfillment capabilities

while leveraging our expanded digital platforms to inform and drive marketing

and content efforts. We believe that our multi-year sustained strong trend in

e-commerce demand trajectory that we have achieved, demonstrates the progress

we continue to make in this area.

• Rapidly evolving our retail capabilities and experiences, including

omnichannel, and significantly expanded e-commerce capacity. Our stores in

North America and in the United Kingdom were predominantly open throughout the

2021 second quarter. While traffic continued to trail historical levels, we

drove higher transaction values across all geographies compared to 2019. Our

results included strong sales growth in many of our tourist locations which

have been a strategic priority in the evolution of our real estate

portfolio. In addition, we continue to leverage

the strong strategic optionality that we have maintained across our real estate

portfolio with a substantial portion of our leases having a natural event

in the next 3 years giving us great flexibility

to optimize our corporately-managed locations. Our goal is to maintain a strong

store base that contributes to our overarching strategic objectives including

supporting our expanded omnichannel capabilities. We also have

seen some stability return to our third-party retail model which

includes workshops at Great Wolf Lodge, Beaches Family Resorts and Carnival

Cruise Lines, which recently began a staggered return to operations. The

third-party retail model allows us to expand in a cost efficient manner

with each partner typically funding the capital investment to open their

locations while also managing the operation of the store, inventory and

staffing.

• Maintaining a solid financial position including a strong balance sheet

to support our business and make strategic investments designed to drive

    further growth.




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Retail Stores:



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



                                                                    Twenty-six weeks ended
                                             July 31, 2021                                              August 1, 2020
                       North America          Europe           Asia        Total       North America      Europe       Asia        Total
Beginning of period               305                  48           1         354                 316          55           1         372
Opened                              2                   -           -           2                   1           -           -           1
Closed                             (2 )                (1 )        (1 )        (4 )               (10 )        (4 )         -         (14 )
End of period                     305                  47           -         352                 307          51           1         359




As of July 31, 2021, 40% 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 shops
and by expansion in other locations outside traditional malls.

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 July 31, 2021, we had six
master franchise agreements, which typically grant franchise rights for a
particular country or group of countries, covering an aggregate of 11 countries.

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

                               Twenty-six weeks ended
                       July 31, 2021           August 1, 2020
Beginning of period                71                       92
Opened                              5                        4
Closed                             (2 )                    (18 )
End of period                      74                       78

In the ordinary course of business, we anticipate signing additional master franchise agreements in the future and terminating other such agreements. We source fixtures and other supplies for our franchisees from China which significantly reduces the capital and lowers the expenses required to open franchises. We are leveraging new formats that have been developed for our corporately-managed locations such as concourses and shop-in-shops with our franchisees.

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Results of Operations

The following table sets forth, for the periods indicated, selected income statement data expressed as a percentage of total revenues, except where otherwise indicated. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales, commercial revenue, international franchising, respectively, as well as immaterial rounding:

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