Hifsa Shakat

Running head: CASE ANALYSIS ASSIGNMENT 1

CASE ANALYSIS ASSIGNMENT 2

Case Analysis Assignment

Build-A-Bear Workshop

Introduction

The case study 31 is Build-A- Bear, in this case study there are many factors that helped this company, one of them being a high profit during the beginning stages of their opening. The early years of Build-A-Bear Workshop were marked with great success. The company’s physical locations grew from 150 stores at fiscal year-end 2003 to 344 company-owned stores in the United States, Canada, the United Kingdom, and Ireland by 2010. Due to this expansion, Build-A-Bear Workshop saw an increase in its revenues from $301.7 million in fiscal year 2004 to $437.1 million in 2006. Its compound annual revenue growth rate reached 20.4 percent, and its net income jumped from $18.5 million in fiscal year 2004 to $29.5 million in 2006, ultimately resulting in a compound annual net income growth rate of 26.5 percent (Case 31, Build-A-Workshop).

Financial Data Analysis

This case study shows that the Build-A-Bear workshops was a huge success, and made substantial money when they first opened, however, financial income statements show that their profits stated to decline several years later. This analysis is going to show the financial statement periods, horizontal analysis of the company, as why they had declining profits.

According to Accounting Tools 2015, horizontal analysis is the comparison of historical financial information over a series of reporting periods, or of the ratios derived from this financial information. The intent is to see if any numbers are unusually high or low in comparison to the information for bracketing periods, which may then trigger a detailed investigation of the reason for the difference. The analysis is most commonly a simple grouping of information that is sorted by period, but the numbers in each succeeding period can also be expressed as a percentage of the amount in the baseline year, with the baseline amount being listed as 100%. The following are the comparative income statements of Build-A-Bear-Workshop:

Exhibit 1 Income Statement				2008-2009	2009-2010
	Fiscal Year	percentage change (%)	percentage change (%)
	2010	2009	2008
Revenues:
Net retail sales	$387,163	$388,552	$460,963	-15.70864	-0.3574811
Franchise fees	3,043	3,353	4,157	-19.34087	-9.2454518
Commercial revenue	11,246	4,001	3,196	25.187735	181.07973
Total revenues	401,452	395,906	468,316	-15.46178	1.4008376
Costs and expenses:
Cost of merchandise sold	239,556	247,511	270,918	-8.639884	-3.2139986
Selling, general, and administrative	163,910	161,692	185,608	-12.88522	1.3717438
Store preopening	708	90	2,410	-96.26556	686.66667
Store closing	—	981	2,952	-66.76829
Interest expense (income), net	(250)	(143)	(799)	-82.10263	74.825175
Total costs and expenses	403,924	419,746	461,089	-8.966382	-3.7694225
Income before income taxes	(2,472)	(23,840)	7,227	-429.8741	-89.630872
Income tax expense	(2,576)	(11,367)	2,663	-526.8494	-77.337908
Net income	$104	($12,473)	$4,564	-373.291	-100.8338
Earnings per common share:
Basic	$0.01	($0.66)	$0.24	-375	-101.51515
Diluted	$0.01	($0.66)	$0.24	-375	-101.51515
Shares used in computing common per share amounts:
Basic	18,601,465	18,874,352	19,153,123	-1.455486	-1.4458086
Diluted	19,034,048	18,874,352	19,224,273	-1.820204	0.8461006

From looking at the income statement, there is a huge difference between the year of 2008 and the following year 2009. The revenue between 2008 and 2009 shows a big decline in net retail sales, a decline over 15%. The contribution margin, sometimes used as a ratio, is the difference between a company's total sales revenue and variable costs. In other words, the contribution margin equals the amount that sales exceed variable costs. This is the sales amount that can be used to, or contributed to, pay off fixed costs (Accounting Course, 2015). From looking at the income statement, this is case, the company had a decline in their volume of sales, thus less product sold. Build-A-Bear’s had a reduction in the net income column, their net income declined by 373%.

Build-A-Bear had barely maintained from the year of 2009 and the year 2010. It shows the net retail sales were $388,552 in 2009 and $387,163 in 2010. The company showed a small margin of increase of total revenue of 1.4%.

Although there is a small increase of revenue between 2009 and 2010, the data provided below will show the changes in the year and their comparison.

	January 1, 2011	January 1, 2010	absolute change	percentage change (%)
Assets
Current assets:
Cash and cash equivalents	$58,755	$60,399	($1,644)	-2.7219
Inventories	46,475	44,384	$2,091	4.71116
Receivables	7,923	5,337	$2,586	48.4542
Prepaid expenses and other current assets	18,425	19,329	($904)	-4.6769
Deferred tax assets	7,465	6,306	$1,159	18.3793
Total current assets	139,043	135,755	$3,288	2.42201
Property and equipment, net	88,029	101,044	($13,015)	-12.881
Goodwill	32,407	33,780	($1,373)	-4.0645
Other intangible assets, net	1,444	3,601	($2,157)	-59.9
Other assets, net	14,871	10,093	$4,778	47.3397
Total Assets	$275,794	$284,273	($8,479)	-2.9827
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$36,325	$32,822	$3,503	10.6727
Accrued expenses	15,488	11,185	$4,303	38.4712
Gift cards and customer deposits	28,880	29,301	($421)	-1.4368
Deferred revenue	6,679	8,582	($1,903)	-22.174
Total current liabilities	87,372	81,890	$5,482	6.69435
Deferred franchise revenue	1,706	2,027	($321)	-15.836
Deferred rent	28,642	34,760	($6,118)	-17.601
Other liabilities	361	816	($455)	-55.76
Commitments and contingencies
Stockholder’s equity:
Preferred stock, par value $0.01, Shares authorized:	—	—
15,000,000: No shares issued or outstanding at
January 3, 2009 and December 29, 2007
Common stock, par value $0.01. Shares authorized:	196	204	($8)	-3.9216
50,000,000. Issued and outstanding: 19,478,750 and
20,676,357 shares, respectively
Additional paid-in capital	76,582	80,122	($3,540)	-4.4183
Accumulated other comprehensive (loss) income	(9,959)	(6,336)		0
Retained earnings	90,894	90,790	$104	0.11455
Total stockholders’ equity	157,713	164,780	($7,067)	-4.2887
Total Liabilities and Stockholders’ Equity	$275,794	$284,273	($8,479)	-2.9827

Looking at the above balance sheet, Build-A-Bear is not showing positive growth in the years, and their performance shows they are hurting and could be in trouble. The above statement reveals that the total assets have changed negatively over the last two years, and it was negative percent where it should have been positive if the company was succeeding. The statement points out the negative image that the company’s fixed assets are going down, in this case the company can’t expand and it shows their overall success is very poor at this time.

Key Success Factors

Build-A-Bear’s success was in the previous years, when they had record breaking profits, and was in top magazines. The income statements show they had some positive income from 2009 through 2010. They had adapted a great overall success when people entered into the stores. They have succeeded product segmentation, and had a different product that entered into the business world. They were able to capture a full on experience from picking out an animal to make, stuff it, name it, and even clothe it. This was the first company to offer an overall experience like this.

Market Data Analysis

According to Stuttle, (2014) market segmentation is the process of dividing an entire market up into different customer segments. Targeting or target marketing then entails deciding which potential customer segments the company will focus on. Marketing segmentation always comes before targeting, which helps a company be more selective about who they are marketing their products to. Marketing segmentation and targeting are equally important for ensuring the overall success of a company.

In the beginning, Build-A-Bear workshop marketed their products for ages 3 to 12 years of age. This was their market segmentation, and it was working as profits were high. With very little competitors at the time, this workshop was in high demand, thus giving Build-A-Bear the competitive advantage.

Factors That Affected Financial Performance

The main factor that had a negative influence on the company’s performance is new competition. Many companies have entered into the market like American Doll, where it was attracting new customers. Technology driven forces has also put a damper on Build-A-Bears income statement. Consumers want technology driven stuffed animals, and Build-A-Bear couldn’t not keep up with competitors, which drove down sales significantly.

SWOT Analysis

Strengths

-First real company into the market with unique product.

-Build-A-Bear name alone has a competitive advantage over other similar companies.

-Great management and customer appreciation, hands on environment.

-Great causes and charities for special occasions.

-Ranked no. 94 in Fortune ’s “100 Best Companies to Work For” list in 2009 and moved up to no. 80 in the 2010.

Weaknesses

-Lack of technology compared to similar stores.

-Kids are seeking more sophisticated entertainment . . . and doing so at younger and younger ages.” Tastes were maturing and becoming more sophisticated at a younger age.

Opportunities

-Add new technology.

-Market to all age brackets of children.

-Add more R&D.

-Expand out of malls

-Make them unique, not like other competitors.

Threats

-Competitors entering the market at a lower price

-Competitors adding new technology.

-Changing fads.

Porter’s Five Forces

According to Mind Tools (2015), there are five forces which shape competition in an industry in which an organization operates. The five forces include new entrants into the industry, supplier power, buyer power, competitive rivalry, threat of substitution, and threat of new entry. Build-A-Bear failed to enter into the new technology world, where competitors have found ways to capture consumers. Overall their locations inside malls was starting to lose consumers, people didn’t want to go to the mall just to Build-A-Bear. Their targeting ages they wanted to attract was not working anymore, as kids wanted new technology gadgets.

Reference

Accounting Course. (2015). Contributing Margin. Retrieved from

http://www.myaccountingcourse.com/financial-ratios/contribution-margin

Accounting Tools. (2015). Horizontal Analysis. Retrieved from http://www.accountingtools.com/horizontal-analysis

Case 31. (2015). Build-A-Bear Workshop.

Mind Tools. (2015). Porter’s Five Forces. Retrieved from

http://www.mindtools.com/pages/article/newTMC_08.htm

Stuttle, R. & Demand, M. (2014). Define Market Segmentation & Targeting. Retrieved from

http://smallbusiness.chron.com/define-market-segmentation-targeting-3253.html