BUILD-A-BEAR WORKSHOP INC (BBW)

CIK: 0001113809. SIC: 5945 Retail-Hobby, Toy & Game Shops. Latest 10-K as of: 2026-04-16.

SIC breadcrumb: Retail Trade > Miscellaneous Retail > SIC 5945 Retail-Hobby, Toy & Game Shops

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1113809. Latest filing source: 0001437749-26-012501.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-04-16. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001113809.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Free cash flow = operating cash flow - capital expenditures. Missing metrics are omitted rather than fabricated.

Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-06-11. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001113809.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001437749-26-020239.

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high. Filing date: 2026-06-11. Report date: 2026-05-02.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 31, 2026, as amended by Amendment No. 1, as filed with the SEC, and include the following:

●

any uncertainty or decline in general global economic conditions, caused by inflation, rising interest rates, geo-political conflicts,  or other external factors,  could lead to disproportionately reduced discretionary consumer spending and a corresponding reduction in demand for our products and have  an adverse effect on our liquidity and profitability;

●

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

●

consumer interests can change rapidly, and our success depends on the ongoing effectiveness of our marketing and online initiatives to build consumer affinity for our brand and drive consumer demand for our products and services;

●

we depend upon the shopping malls and tourist locations in which our stores are located to attract guests. Continued or further volatility in retail consumer traffic could adversely affect our financial performance and profitability;

●

our business may be adversely impacted at any time by various significant competitive threats;

●

global or regional health pandemics or epidemics could negatively impact our business, financial position and results of operations;

●

our profitability could be adversely affected by fluctuations in petroleum product prices;

●

if we are unable to generate interest in and demand for our interactive retail experience and products, including being able to identify and respond to consumer preferences in a timely manner, our sales, financial condition and profitability could be adversely affected;

●

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

●

if we cannot renew, renegotiate or replace our store leases or enter into leases for new stores on favorable terms, or if we violate any of the terms of our current leases, our revenue and profitability could be harmed;

●

failure 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;

●

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 formats and business models 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 that services the majority of our stores in North America and our third-party distribution center providers used in the western U.S. and Europe may be required to close and operations may experience disruptions or may operate inefficiently;

●

we rely on a few global supply chain vendors to supply substantially all of our materials and merchandise, and significant price increases or any disruption in their ability to deliver materials and merchandise could harm our ability to source products and supply inventory to our stores;

●

our merchandise is manufactured by foreign manufacturers, 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;

●

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

●

if we cannot effectively manage our international partner-operated locations, attract new partners or if the laws relating to our international partners change, our growth and profitability could be adversely affected, and we could be exposed to additional liability;

●

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 or expectations, we could be subject to liability as well as damage to our reputation;

●

we may fail to renew, register or otherwise protect our trademarks or other intellectual property and have been sued by third parties for infringement or misappropriation of their proprietary rights, which could be costly, distract our management and personnel and 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;

●

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 suffer negative publicity and damage to our reputation if we do not continue to evolve environmental, social, and governance initiatives in a timely manner;

●

fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline;

●

fluctuations in our operating results could reduce our cash flow, or trigger restrictions under our credit agreement, cause us 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; 

●

our relatively low market capitalization can cause the market price of our common stock to become volatile;

●

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;

●

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

●

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

●

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

17

Table of Contents

Business Overview

Build-A-Bear Workshop, Inc., a Delaware corporation, was formed in 1997 as a mall-based, experiential specialty retailer for children. Build‑A‑Bear has evolved to become a leading global "retailtainment" brand on a mission to add a little more heart to life. At Build-A-Bear, guests are invited to create personalized furry friends through a unique stuffing, dressing, accessorizing and naming process, accentuated by a memorable Heart Ceremony that creates moments of connection for people of all ages. Over the years, Build‑A‑Bear has grown into a multi‑generational phenomenon, positioned at the intersection of pop‑culture trends. Beyond its signature retail experience, our brand also offers pre‑stuffed plush, gifting, partnerships with best‑in‑class licensed and collectible characters, and original storytelling through Build‑A‑Bear Entertainment, LLC.  Build‑A‑Bear’s current brand platform and message, “The Stuff You Love,” crosses ages and cultures while celebrating nearly 30 years of helping people mark life’s meaningful moments.

The Build-A-Bear brand has high consumer awareness and positive affinity, and we leverage our brand strength to expand the footprint of our retail experience locations through a range of store sizes, formats, and locations, including tourist destinations. In addition to growing our corporately-managed store footprint, we are also growing through partner-operated and franchise locations, particularly for our international expansion. Our ongoing digital transformation, which touches our e-commerce business, consumer loyalty program, and digital content, has led to omnichannel growth over the past several years. Build-A-Bear's pop-culture appeal plays a key role in expanding our total addressable market beyond children to teens and adults with sports licensing, collectible and gifting offerings, as well as to categories beyond plush.

As of May 2, 2026, the Company had 669 global locations through a combination of its corporately-managed, partner-operated, and franchise models. This reflects 376 corporately-managed locations,  including 334 stores in the United States (“U.S.”) and Canada and 42 stores in the United Kingdom ("U.K.") and the Republic of Ireland, 181 partner-operated locations in which we sell our products on a wholesale basis to other companies that then, in turn, execute our retail experience, and 112 international franchise locations , all under the Build-A-Bear Workshop brand. In addition to these stores, we sell products on our company-owned e-commerce sites and third-party marketplace sites, our franchisees sell products through sites that they manage as well as other third-party marketplace sites and other parties sell products on their sites under wholesale agreements. For the 2026 fiscal year to date, the Company had net new unit growth of 7 experience locations, comprised of one corporately managed location, 3 partner-operated locations, and 3 international franchise locations.

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

•

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

•

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

•

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

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

Recent Events and Trends Regarding Tariffs and International T

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization. Confidence: high. Filing date: 2026-04-16. Report date: 2026-01-31.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in “Risk Factors” and elsewhere in this Annual Report on Form 10-K. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, which appears elsewhere in this Annual Report on Form 10-K.

Business Overview

Build-A-Bear Workshop, Inc., a Delaware corporation, was formed in 1997 as a mall-based, experiential specialty retailer for children. Build‑A‑Bear has evolved to become a leading global "retailtainment" brand on a mission to add a little more heart to life. At Build-A-Bear, guests are invited to create personalized furry friends through a unique stuffing, dressing, accessorizing and naming process, accentuated by a memorable Heart Ceremony that creates moments of connection for people of all ages. Over the years, Build‑A‑Bear has grown into a multi‑generational phenomenon, positioned at the intersection of pop‑culture trends. Beyond its signature retail experience, our brand also offers pre‑stuffed plush, gifting, partnerships with best‑in‑class licensed and collectible characters, and original storytelling through Build‑A‑Bear Entertainment, LLC.  Build‑A‑Bear’s current brand platform and message, “The Stuff You Love,” crosses ages and cultures while celebrating nearly 30 years of helping people mark life’s meaningful moments. 

The Build-A-Bear brand has high consumer awareness and positive affinity, and we leverage our brand strength to expand the footprint of our retail experience locations through a range of store sizes, formats, and locations, including tourist destinations. In addition to growing our corporately-managed store footprint, we are also growing through partner-operated and franchise locations, particularly for our international expansion. Our ongoing digital transformation, which touches our e-commerce business, consumer loyalty program, and digital content, has led to omnichannel growth over the past several years. Build-A-Bear's pop-culture appeal plays a key role in expanding our total addressable market beyond children to teens and adults with sports licensing, collectible and gifting offerings, as well as to categories beyond plush.

As of January 31, 2026, the Company had 662 global locations through a combination of its corporately-managed, partner-operated, and franchise models. This reflects 375 corporately-managed locations, including 333 stores in the United States (“U.S.”) and Canada and 42 stores in the United Kingdom (“U.K.”) and the Republic of Ireland, 178 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 109 franchise locations operating internationally, all under the Build-A-Bear Workshop brand. In addition to these stores, we sell products on our company-owned e-commerce sites and third-party marketplace sites, our franchisees sell products through sites that they manage as well as other third-party marketplace sites and other parties sell products on their sites under wholesale agreements. For the 2025 fiscal year, the Company had net new unit growth of 64 experience locations, comprised of seven corporately managed locations, 40 partner-operated locations, and 17 international franchise locations.

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Table of Contents

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., Ireland, and two e-commerce sites;

•

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

•

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

Selected financial data attributable to each segment for fiscal 2025, 2024 and 2023 are presented in Note 15 — Segment Information to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Our year-over-year results discussed below are impacted by fiscal 2025 and fiscal 2024 being 52-week periods compared to fiscal 2023 which had an additional week because it was a 53-week period.

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

We ended fiscal 2025 with no borrowings under our credit agreement and with $26.8 million in cash, cash equivalents and restricted cash after investing $25.5 million in capital projects throughout the year. In fiscal 2025 the company utilized $27.5 million in cash to repurchase 508,945 shares under the share 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 authorized a new share repurchase program of up to $100 million.  From the end of fiscal 2025 through April 14, 2026, the Company utilized $10.7 million to repurchase 231,153 shares under the stock buyback program, leaving $51.0 million available under the September 2024 Stock Repurchase Program.

On March 12, 2025, our Board of Directors approved a quarterly dividend program of $0.22 per share representing an increase of 10%, to evolve its strategic use of capital. During fiscal 2025, the company declared and paid quarterly dividends totaling $ 11.5 million to shareholders. Additionally, on March 11, 2026, the Board of Directors declared a quarterly cash dividend of $0.23 per share of issued and outstanding common stock, representing an increase of 4.5%.  The dividend will be paid on April 9, 2026, to all stockholders of record as of March 26, 2026.

Recent Events and Trends Regarding Tariffs and International Trade 

Global trade policy continues to evolve and the ultimate impact of recent developments with respect to U.S. tariffs is unclear. On February 20, 2026, the U.S. Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). The ultimate availability, timing, and amount of any potential refunds of such tariffs remain uncertain and are subject to further legal, regulatory, and administrative developments. Following the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on the Company's business. The Company continues to monitor and evaluate these developments and assess their potential impact on its business, financial condition, and results of operations.

Since we import the vast majority of our products from vendors outside the U.S., we face uncertainty and risks related to tariffs and other trade policies that could negatively impact our Company.  Tariffs and other non-tariff trade practices can adversely affect our business in multiple ways including increased costs of our products. While we have taken steps in recent years to diversify our supply chain and reduce China sourcing by shifting primarily to Vietnam, we remain subject to substantial potential exposure to tariffs. Specifically, the latest tariffs implemented by the U.S. 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.

Following is a description and discussion of the major components of our statement of operations:

Revenues

Net retail sales, commercial revenue and international franchising: See Note 3 — "Revenue" to the consolidated financial statements for additional accounting information.

We use net retail sales per square foot as a performance measure for our business. The following table details net retail sales per square foot for stores open throughout the fiscal year for the periods presented:

Fiscal year ended

January 31,

February 1,

February 3,

Net retail sales per square foot

2026

2025

2024

North America (1)

$518

$492

$495

United Kingdom (2)

£735

£729

£629

(1)

Net retail sales per square foot in North America represents net retail sales from stores open throughout the entire period in North America, excluding e-commerce sales, divided by the total leased square footage of such stores.

(2)

Net retail sales per square foot in the U.K. represents net retail sales from stores open throughout the entire period in the U.K., excluding e-commerce sales, divided by the total selling square footage of such stores.

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Table of Contents

Costs and Expenses

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.

Selling, general and administrative expense (“SGA”): These expenses include store payroll and benefits, advertising, credit card fees, store supplies and normal store pre-opening and closing expenses as well as central office general and administrative expenses, including costs for management payroll, benefits, incentive compensation, travel, information systems, accounting, insurance, legal and public relations. These expenses also include depreciation of central office assets and the amortization of other assets. Certain store expenses such as credit card fees historically have increased or decreased proportionately with net retail sales. In addition, bad debt expenses and recoveries and accounts receivable related charges are recorded in SGA. 

Stores

Corporately-Managed Locations:

The number of Build-A-Bear Workshop stores in the U.S. and Canada (collectively, North America) and the U.K. and Ireland (collectively, Europe) for the last three fiscal years is summarized as follows:

Fiscal year ended

January 31, 2026

February 1, 2025

February 3, 2024

North

North

North

America

Europe

Total

America

Europe

Total

America

Europe

Total

Beginning of period

328

40

368

320

39

359

312

38

350

Opened

7

2

9

14

3

17

9

2

11

Converted

-

-

-

-

-

-

(1

)

-

(1

)

Closed

(2

)

-

(2

)

(6

)

(2

)

(8

)

-

(1

)

(1

)

End of period

333

42

375

328

40

368

320

39

359

During fiscal 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 54% of our store base as of January 31, 2026. During fiscal 2025, we executed five 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.

Partner-Operated Locations:

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

Fiscal year ended

January 31, 2026

February 1, 2025

February 3, 2024

Beginning of period

138

92

70

Opened

44

47

22

Closed

(4

)

(1

)

-

End of period

178

138

92

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Table of Contents

Through our partner-operated model, there were 178 stores in operation at the end of fiscal year 2025 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 on a wholesale basis. These locations are heavily-weighted to the hospitality industry, which allow us to further advance our focus on experience location expansion in non-traditional and tourist areas, as well as shop-in-shop arrangements within other retailers’ stores.

International Franchise Locations:

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

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

Fiscal year ended

January 31, 2026

February 1, 2025

February 3, 2024

Beginning of period

92

83

77

Opened

22

11

12

Closed

(5

)

(2

)

(6

)

End of period

109

92

83

As of January 31, 2026, the distribution of franchise locations among these countries was as follows:

South Africa

23

Australia (1)

38

China (2)

4

Gulf States (3)

32

Chile

12

Total

109

(1)

Australia master franchise agreement includes New Zealand where one store is currently open.

(2)

China master franchise agreement includes Hong Kong where two stores are currently open. 

(3)

Gulf States master franchise agreement includes Kuwait, Qatar and the United Arab Emirates which all have stores as well as Bahrain and Oman where no stores are currently open.

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.

Results of Operations

Fiscal 2025 Overview

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 $67.2 million, which was the highest in our company’s 28-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 $33.4 million in fiscal 2025. We ended the year with cash and cash equivalents of $26.8 million with no outstanding borrowings on our credit facility. During fiscal 2025, the Company returned $39.0 million to shareholders through $27.5 million in share repurchases and $11.5 million in dividends. 

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The following table sets forth, for the periods indicated, selected statement of operations data expressed as a percentage of total revenues, except where otherwise indicated. Percentages may not total due to immaterial rounding:

Fiscal year ended

January 31,

February 1,

February 3,

2026

2025

2024

Revenues:

Net retail sales

91.7

%

92.8

%

93.9

%

Commercial revenue

7.3

6.3

5.2

International franchising

1.0

0.9

0.9

Total revenues

100.0

100.0

100.0

Costs and expenses:

Cost of merchandise sold - retail (1)

43.9

45.0

45.3

Cost of merchandise sold - commercial (1)

44.4

42.8

47.6

Cost of merchandise sold - international franchising (1)

73.6

69.2

62.1

Total cost of merchandise sold

44.2

45.1

45.6

Consolidated gross profit

55.8

54.9

54.4

Selling, general and administrative

43.3

41.5

40.9

Interest income, net

(0.2

)

(0.2

)

(0.2

)

Income before income taxes

12.7

13.5

13.6

Income tax expense

2.8

3.1

2.8

Net income

9.9

%

10.4

%

10.9

%

Retail gross margin (2)

56.1

%

55.0

%

54.7

%

(1)

Cost of merchandise sold – retail is expressed as a percentage of net retail sales. Cost of merchandise sold – commercial is expressed as a percentage of commercial revenue. Cost of merchandise sold - international franchising is expressed as a percentage of international franchising revenue.

(2)

Retail gross margin represents net retail sales less cost of merchandise sold – retail; retail gross margin percentage represents retail gross margin divided by net retail sales.

Fiscal Year Ended January 31, 2026 Compared to Fiscal Year Ended February 1, 2025

Total revenues. Net retail sales were $486.0 million for fiscal 2025, compared to $460.3 million for fiscal 2024, an increase of $25.7 million or 5.6%, compared to the prior year. The components of this increase are as follows:

Fiscal year ended

January 31, 2026

(dollars in millions)

Impact from:

Existing stores

$

17.2

New stores

15.9

E-commerce

(5.8

)

Store closures

(2.5

)

Gift card discounts

(0.1

)

Foreign currency translation

2.5

Gift card breakage

(0.3

)

Other

(1.2

)

$

25.7

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The retail revenue increase was primarily the result of an increase in sales from corporately-operated retail locations through growth in the number of transactions, as our traffic outpaced national retail traffic data, and the opening of a net seven new corporately-managed locations in the fiscal year. The increased sales were partially offset by a decrease in web demand for the year.

Commercial revenue was $38.8 million for fiscal 2025 compared to $31.4 million for fiscal 2024, an increase of $7.4 million or 23.5%, primarily due to increased sales volume from our wholesale accounts through our partner-operated retail model.

Revenue from international franchising was $5.1 million for fiscal 2025 compared to $4.7 million for fiscal 2024. This $0.4 million or 8.5% increase was primarily due to having more stores in operation in 2025 compared to the same period in 2024 and the timing of product shipments.

Retail gross margin. Retail gross margin was $272.8 million in fiscal 2025 compared to $253.1 million in fiscal 2024, an increase of $19.7 million or 7.8%. As a percentage of net retail sales, retail gross margin increased to 56.1% for fiscal 2025 from 55.0% for fiscal 2024, or 110 basis points as a percentage of net retail sales. The increase in gross margin was the result of lower merchandise and freight costs partially offset by higher occupancy and tariff and related costs, net of mitigating actions.

Selling, general and administrative. Selling, general and administrative expenses were $229.2 million or 43.3% of consolidated revenue for fiscal 2025 as compared to $206.2 million or 41.5% of consolidated revenue for fiscal 2024. The increase in overall expense was driven by higher store-level wages due to minimum wage increases, higher corporate payroll and other costs and general inflationary pressures.   

Interest income, net. For fiscal 2025, we had $0.8 million of interest income compared to $0.9 million of interest income in fiscal 2024.

Provision for income taxes. The provision for income taxes was $15.0 million in fiscal 2025 compared to $15.4 million in fiscal 2024. The 2025 effective rate of 22.3% differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the benefit of the foreign-derived intangible income (FDII) deduction and discrete benefits related to settlement of prior period positions. The 2024 effective rate of 22.9% differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the benefit of the FDII deduction. 

Fiscal Year Ended February 1, 2025 Compared to Fiscal Year Ended February 3, 2024

Fiscal 2024 has a 52-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 million for fiscal
2024, compared to $
456.2 million for fiscal
2023, an increase of $
4.2 million or
0.9%, compared to the prior year. The components of this increase are as follows:

Fiscal year ended

February 1, 2025

(dollars in millions)

Impact from:

New stores

$

12.2

53rd week

(9.2

)

Store closures

8.5

E-commerce

(8.1

)

Gift card discounts

(2.3

)

Gift card breakage

1.4

Foreign currency translation

0.8

Existing stores

0.2

Other

0.7

$

4.2

The retail revenue increase was primarily the result of an increase in sales from corporately-operated retail locations through growth in the number of transactions, as our traffic outpaced national retail traffic data, and the opening of a net nine new corporately-managed locations in the fiscal year. The increased sales were partially offset by impact of the 53rd week in 2023 and a decrease in web demand for the year.

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 partner-operated model.

Revenue from international franchising was $4.7 million for fiscal 2024 compared to $4.5 million for fiscal 2023. This $0.2 million or 3.4% increase was primarily due to having more stores in operation in 2024 compared to the same period in 2023.

Retail gross margin. Retail gross margin was $253.1 million in fiscal 2024 compared to $249.3 million in fiscal 2023, an increase of $3.8 million or 1.5%. As a percentage of net retail sales, retail gross margin increased to 55.0% for fiscal 2024 from 54.7% for fiscal 2023, or 30 basis points as a percentage of net retail sales. The increase in gross margin was the result of lower merchandise and freight costs partially offset by higher occupancy expenses.

Selling, general and administrative. Selling, general and administrative expenses were $206.2 million or 41.5% of consolidated revenue for fiscal 2024 as compared to $199.0 million or 40.9% of consolidated revenue for fiscal 2023. The increase in overall expense was driven by higher store-level wages due to minimum wage increases and higher outside services.  These higher expenses were partially offset by decreased advertising expense. 

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

Provision for income taxes. The provision for income taxes was $15.4 million in fiscal 2024 compared to $13.5 million in fiscal 2023. The 2024 effective rate of 22.9% differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the benefit of the foreign-derived intangible income (FDII) deduction. The 2023 effective rate of 20.4% differed from the statutory rate of 21% primarily due to the reversal of the valuation allowance in the U.K. partially offset by state income tax expense.

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Non-GAAP Financial Measure - Earnings before Interest, Taxes, Depreciation, and Amortization 

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 thousands):

Fiscal year ended

January 31, 2026

February 1, 2025

February 3, 2024

Income before income taxes (pre-tax)

$

67,227

$

67,141

$

66,329

Interest income, net

(801

)

(861

)

(929

)

Depreciation and amortization expense

14,952

14,772

13,657

Earnings before interest, taxes, depreciation, and amortization

$

81,378

$

81,052

$

79,057

EBITDA for fiscal 2025 was $81.4 million, compared to $81.1 million for fiscal 2024  and $79.1  million in fiscal 2023.   The increase of $0.3 million in fiscal 2025 and $2.0 million in fiscal 2024 were driven by retail and commercial margins partially offset by higher SGA expenses.  

Liquidity and Capital Resources 

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):

Fiscal year ended

January 31,

February 1,

February 3,

2026

2025

2024

Net cash provided by operating activities

$

65,052

$

47,087

$

64,310

Net cash used in investing activities

(25,545

)

(19,317

)

(18,295

)

Net cash used in financing activities

(40,709

)

(44,159

)

(43,901

)

Effect of exchange rates on cash

199

(180

)

15

Increase (decrease) in cash, cash equivalents and restricted cash

$

(1,003

)

$

(16,569

)

$

2,129

Operating Activities. Cash flows provided by operating activities were $65.1 million, $47.1 million and $64.3 million in fiscal years 2025, 2024 and 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.

Investing Activities. Cash flows used in investing activities were $25.5 million, $19.3 million and $18.3 million in fiscal years 2025, 2024 and 2023, respectively. The increases in cash used in investing activities when comparing fiscal 2025 to fiscal 2024 and fiscal 2024 to fiscal 2023 were primarily driven by an increased spending on capital expenditures related to information technology projects and new store openings. 

Financing Activities. Financing activities used cash of $40.7 million in fiscal 2025, $44.2 million in fiscal 2024 and $43.9 million in fiscal 2023. Cash used in financing activities in fiscal 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. 

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

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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 $ 40.0 million, subject to a borrowing base formula. As of January 31, 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 1, 2025, we had a borrowing base of $25.0 million. As of January 31, 2026, we have a borrowing base of $40.0 million and had no outstanding borrowings.

In fiscal 2025 the company utilized $27.5 million in cash to repurchase 508,945 shares under the share 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 authorized a new share repurchase program of up to $100 million.  From the end of fiscal 2025 through April 14, 2026, the Company utilized $10.7 million to repurchase 231,153 shares under the stock buyback program, leaving $51.0 million available under the September 2024 Stock Repurchase Program.

In fiscal 2025, the Company declared a quarterly dividend of $0.22 per share, representing an increase of 10% from the year before, during the first, second, third and fourth quarters, totaling $2.9 million, $2.9 million, $2.9 million and $2.8 million respectively.  Additionally, on March 11, 2026, the Board of Directors declared a quarterly cash dividend of $0.23 per share of issued and outstanding common stock, representing an increase of 4.5%.  The dividend will be paid on April 9, 2026, to all stockholders of record as of March 26, 2026.

We had restricted cash of $0.4 million as of January 31, 2026 February 1, 2025 and February 3, 2024.

Most of our retail stores are located within shopping malls and all are operated under leases classified as operating leases. Our leases in North America tend to be shorter term leases to provide flexibility in aligning stores with market trends. During fiscal 2025, lease extensions began to have longer terms as we have secured longer deals with more favorable terms. Our leases typically require us to pay personal property taxes, our pro rata share of real property taxes of the shopping mall, our own utilities, repairs and maintenance in our store, a pro rata share of the malls’ common area maintenance and, in some instances, merchant association fees and media fund contributions. Many leases contain incentives to help defray the cost of construction of a new store. Typically, a portion of the incentive must be repaid to the landlord if we choose to terminate the lease prior to its contracted term. In addition, some of these leases contain various restrictions relating to change in control of our company. Our leases also subject us to risks relating to compliance with changing mall rules and the exercise of discretion by our landlords on various matters, including rights of termination in some cases. Rents are invoiced monthly and paid in advance.

Our leases in the U.K. and Ireland typically have terms of five or ten years and generally contain a provision whereby every third or fifth year we have the opportunity to exit the lease (the ‘break clause’). The leases typically provide the lessee with the first right for renewal at the end of the lease. We may also be required to make deposits and rent guarantees to secure new leases as we expand. Real estate taxes also change according to government time schedules to reflect current market rental rates for the locations we lease. Rents are invoiced monthly or quarterly and paid in advance.

Capital spending in fiscal 2025 totaled $25.5 million and was primarily used to support our ongoing digital initiatives, 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 January 31, 2026, we had contractual obligations totaling approximately $128.6 million, of which $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 January 31, 2026.

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Inflation

The impact of inflation on the Company's business operations was seen throughout fiscal 2023 and 2024.  Inflation continued to adversely affect our business in fiscal 2025, mainly through rising store labor costs and higher input costs. We implemented certain mitigating actions such as further cost reductions and process efficiencies, in addition to selective strategic price adjustments. We anticipate inflationary pressures to persist throughout  2026 and beyond, driven by wage growth, tariff and tariff-related costs that extend beyond inventory purchases to broader supply chain and other operational areas. On February 20, 2026, the United States Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). Following the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on the Company's business. These and future changes in tariffs, trade policies, trade actions, or retaliatory trade measures in response, have resulted and may continue to result in additional costs and pricing pressures, supply chain disruptions, volatile or unpredictable customer spending patterns, and increased economic or geopolitical risks, which could adversely impact our future sales, business, financial condition, and results of operations, materially or in ways that we cannot predict. We continue to monitor the impact of inflation on our business operations and may need to adjust pricing strategies as needed to offset cost increases during fiscal 2026 and beyond. Fluctuations in general price inflation could negatively affect our financial results by adversely impacting material availability, shipping and warehousing expenses, and other operational overhead. Inflationary pressures may be compounded by elevated transportation costs linked to geopolitical environment arising from events in the Middle East. We cannot provide an estimate or range of impact that such inflation may have on our future results of operations. However, failure to recover increased costs through pricing adjustments or a decline in consumer spending could negatively affect our business, results of operations, financial condition, and cash flows. 

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies, which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the financial statements.

We believe application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.

Our accounting policies are more fully described in Note 2 - "Summary of Significant Accounting Policies" to our consolidated financial statements, which appear elsewhere in this Annual Report on Form 10-K. We have identified the following critical accounting estimates:

Long-Lived Asset Impairments

In accordance with ASC 360-10-35, we assess the potential impairment of long-lived assets, which include property, plant and equipment and operating lease right-of-use assets (subsequent to the adoption of ASC 842, Leases) when events or changes in circumstances indicate that the carrying value may not be recoverable. Management's judgments regarding the existence of impairment indicators are based on market conditions and financial performance. Recoverability is measured by comparing the carrying amount of an asset, or asset group, to expected future net cash flows generated by the asset, or asset group. If the carrying amount exceeds its estimated undiscounted future cash flows, the carrying amount is compared to its fair value and an impairment charge is recognized to the extent of the difference. For operating lease right-of-use assets, we determine the fair value of the lease right-of-use assets by comparing the contractual rent payments to estimated market rental rates. Fair value is calculated as the present value of estimated future cash flows for each asset group.

For purposes of evaluating store assets for impairment, we have determined that each store location is an asset group, inclusive of the right-of-use asset attributable to each store. Factors that we consider important which could individually or in combination trigger an impairment review include, but are not limited to, the following: (1) significant underperformance relative to historical or projected future operating results; (2) significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and (3) significant changes in our business strategies and/or negative industry or economic trends. We assess events and changes in circumstances or strategy that could potentially indicate that the carrying value of long-lived assets may not be recoverable as they occur. Due to the significance of the fourth quarter to individual store locations, we assess store performance quarterly, using rolling twelve-month results (i.e., full fiscal year). We consider a historical and/or projected negative cash flow trend for a store location to be an indicator that the carrying value of that asset group may not be recoverable. Impairment charges related to this assessment are typically included in Store asset impairment as a component of income (loss) before income taxes in the DTC segment. See Note 4 - "Leases" and Note 6 - "Property and Equipment, net" to our consolidated financial statements for further discussion.

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During fiscal 2025, the Company's impairment analysis identified no indicators of impairment for long-lived assets. During fiscal 2024,  the Company's analysis identified indicators of impairment at two retail locations and the Company recorded immaterial impairment charges for long-lived assets in the Company's DTC segment.  

Additionally, we consider a more likely than not assessment that an individual location will close prior to the end of its lease term as a triggering event to review the store asset group for recoverability. These assessments are reviewed on a quarterly basis. When indicated, the carrying value of the assets is reduced to fair value, calculated as the estimated future cash flows for each asset group.

In the event that we decide to close any or all of these stores in the future, we may be required to record additional impairments, lease termination fees, severance and other charges. Impairment losses in the future are dependent on a number of factors such as site selection, general economic trends, public health issues (such as a pandemic), and thus could be significantly different than historical results. The assumptions used in future calculations of fair value may change significantly which could result in further impairment charges in future periods.

Revenue Recognition

For the Company’s gift cards, revenue is deferred for single transactions until redemption including any related gift card discounts. Approximately 80% of gift cards are redeemed within three years of issuance and over the last three years, approximately 65% of gift cards issued have been redeemed within the first twelve months. In addition, unredeemed gift cards or breakage revenue is recorded in proportion to the customer’s redemption pattern using an estimated breakage rate based on historical experience. Following the reopening of the stores after the pandemic, the Company experienced lower redemptions of its gift cards for all periods of outstanding activated cards compared to historical redemption patterns observed prior to fiscal year 2020, which impacted the gift card breakage rate. Management believes that the redemption behavior observed during the pandemic was not indicative of long-term customer behavior and accordingly adjusted the historical redemption data used to calculate the breakage rate. In more recent periods, gift card redemption patterns have generally returned to levels consistent with pre-2020 experience. The Company continues to evaluate expected breakage annually and adjusts the breakage rates in the fourth quarter of each year, or other times, if significant changes in customer behavior are detected. Changes to breakage estimates impact revenue recognition prospectively.  Further, given the magnitude of the Company's gift card liability, the changes in breakage rates could have a significant impact on the amount of breakage revenue recognized in future periods. As a matter of sensitivity, a hypothetical 1% change in our gift card breakage rate in fiscal 2025 would have resulted in a change in breakage revenue of $1.3 million. 

For certain qualifying transactions, a portion of revenue transactions are deferred for the obligation related to our loyalty program or when a material right in the form of a future discount is granted. In these transactions, the transaction price is allocated to the separate performance obligations based on the relative standalone selling price. The standalone selling price for the points earned for our loyalty program is estimated using the net retail value of the merchandise purchased, adjusted for estimated breakage based on historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired. A hypothetical 1% change in redemption patterns our loyalty program would result in a change in deferred revenue of approximately $0.1 million.

In regard to the consolidated balance sheet, contract liabilities for gift cards are classified as gift cards and customer deposits, and contract liabilities related to the loyalty program are classified as deferred revenue and other.

See Note 3 - "Revenue for additional information".

Leases 

We determine if an arrangement is a lease at inception. The right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments using a discounted cash flow analysis, considering lease terms and our incremental borrowing rate, over the lease term for those arrangements where there is an identified asset and the contract conveys the right to control its use. Our lease term includes options to extend or terminate a lease only when it is reasonably certain that we will exercise that option.

The majority of our leases do not provide an implicit rate and therefore, we estimate the incremental borrowing discount rate on a periodic basis. The discount rates used are indicative of a synthetic credit rating based on quantitative and qualitative analysis and adjusted one notch higher to estimate a secured credit rating. For non-U.S. locations, a risk-free rate yield based on the currency of the lease is used to estimate the incremental borrowing rate.

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Income Taxes

We recognize deferred tax assets resulting from tax credit carryforwards and deductible temporary differences between taxable income on our income tax returns and income before taxes under GAAP. Deferred tax assets generally represent future tax benefits to be received when these carryforwards can be applied against future taxable income or when expenses previously reported in our consolidated financial statements become deductible for income tax purposes. A deferred tax asset valuation allowance is required when some portion or all of the deferred tax assets may not be realized. We consider the weight of all available evidence, both positive and negative, in assessing the realizability of the deferred tax assets by each taxing jurisdiction. We evaluate the sustained profitability and three years of cumulative income in each jurisdiction and consider the Company’s ability to carry back its tax losses or credits for refunds, the availability of tax planning strategies, reversals of existing taxable temporary differences and projections of future taxable income.  As we had incurred a cumulative book loss in the U.K. over the three-year period ended February 2, 2019, we evaluated the realizability of our UK deferred tax assets and, accordingly, in the fourth quarter of fiscal 2018, the Company recorded a $3.7 million valuation allowance on its U.K. deferred tax assets.  In the fourth quarter of fiscal 2023, the Company recorded a benefit of $5.1 million for the reversal of the valuation allowance on deferred tax assets expected to be realized in the U.K.  The positive evidence considered in our assessment of the realizability of the deferred tax assets included the generation of significant positive cumulative income in the U.K. for the three-year period ending with fiscal 2023, the implementation of tax planning strategies, and projections of future taxable income.  The Company maintains a valuation allowance in fiscal year 2024 and 2025 in certain other foreign jurisdictions.  Changes in the valuation allowance in fiscal 2025 are primarily related to return-to-provision true-ups and functional currency fluctuations.

Significant judgment is required in evaluating our uncertain tax positions. We establish accruals for uncertain tax positions when we believe that the full amount of the associated tax benefit may not be realized. In the future, if we prevail in matters for which accruals have been established previously or pay amounts in excess of reserves, there could be an effect on our income tax provisions in the period in which such determination is made. Tax authorities regularly examine the Company’s returns in the jurisdictions in which the Company does business. Management regularly assesses the tax risk of the company’s return filing positions and believes its accruals for uncertain tax benefits are adequate as of January 31, 2026 and February 1, 2025.

In July 2025, One Big Beautiful Bill Act (H.R.1) was signed into law in the U.S., which contained a broad range of tax reform provisions affecting businesses.  The effects of the legislation, which were immaterial, are reflected in the accompanying consolidated financial statements for the period ended January 31, 2026. 

Recent Accounting Pronouncements

See Note 2 – "Summary of Significant Accounting Policies" for additional information.