Value Investing News

Under ordinary circumstances, these operating lease payments are fixed obligations, like debt payments, and should be treated as such.  Under the exceptional economic malaise with which we are currently afflicted, however, lessors appear willing to allow lessees to re-negotiate these contracts, even for financially healthy lessees! The post look at the example of Build-A-Bear (BBW).

Build-A-Bear (BBW) has a market cap of $80 million, with a cash position of $47 million and zero balance sheet debt. But as a mall retailer, it has certain fixed costs in the form of rent and labour which make investors very nervous when revenues are in general decline.

While Build-A-Bear has some attractive fundamentals, it might be a value trap. Saj Karsan notes that the company is not actually debt free if you capitalize its capital operating leases and the business is not built to survive a protracted downturn.

Analysts cite a large drop in same store sales, and there is a fear out there that Build-A-Bear is a fad whose time has now passed.