BUILD-A-BEAR WORKSHOP INC Income Taxes Disclosure

(8)	Income Taxes

 

The Company’s income before income taxes from domestic and foreign operations (which include the U.K., Canada, China, and Ireland), is as follows (in thousands):

 

 

		Fiscal year ended
		January 31,				February 1,				February 3,
		2026				2025				2024
Domestic		$	65,761			$	63,872			$	61,110
Foreign			1,466				3,269				5,219
Total income before income taxes		$	67,227			$	67,141			$	66,329

 

The components of the income tax expense (benefit) are as follows (in thousands):

 

		Fiscal year ended
		January 31,				February 1,				February 3,
		2026				2025				2024
Current:
U.S. Federal		$	11,382			$	11,345			$	12,080
U.S. State			3,037				2,834				3,205
Foreign			56				54				145
Deferred:
U.S. Federal			924				683				(537	)
U.S. State			118				161				(212	)
Foreign			(493	)			279				(1,157	)
Income tax expense		$	15,024			$	15,356			$	13,524

 

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 tax benefit of the foreign-derived intangible income (FDII) deduction and a favorable tax position affecting its U.K. net operating loss (NOL) from prior years. 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. 

 

The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets based on all available positive and negative evidence. Changes in the valuation allowance in fiscal 2025 are primarily related to return-to-provision true-ups and functional currency fluctuations.

 

For the year ended January 31, 2026, the Company adopted ASU 2023-09 on a prospective basis. Differences between the provision for income taxes at the U.S. federal statutory income tax rate and the provision in the consolidated statements of operations are as follows:

 

	Fiscal year ended
	January 31, 2026
	Amount			Percent
U.S. federal statutory income tax rate	$	14,118			21.0	%
State and local income taxes, net of federal tax benefit (1)		2,492			3.7	%
Foreign tax effects
United Kingdom
Prior Period Adjustments		(908	)		(1.4	%)
Other		55			0.1	%
Other foreign jurisdictions		13			0.0	%
Effect of cross-border tax laws
Foreign-derived intangible income		(1,014	)		(1.5	%)
Changes in valuation allowances		(2	)		(0.0	%)
Nontaxable or nondeductible items
Executive compensation		467			0.7	%
Other		204			0.3	%
Tax credit		(257	)		(0.4	%)
Other adjustments		(144	)		(0.2	%)
Effective tax rate	$	15,024			22.3	%

 

⁽¹⁾ During the year ended January 31, 2026, state taxes in California, Florida, Illinois, New York, and Texas comprised more than 50% of the tax effect in this category.

 

Differences between the provision for income taxes at the U.S. federal statutory income tax rates and the provision prior to the adoption of ASU 2023-09 is as follows:

 

		Fiscal year ended
		February 1,				February 3,
		2025				2024
Income before income taxes		$	67,141			$	66,329
U.S. federal statutory income tax rate			21	%			21	%
Income tax expense at statutory federal rate			14,100				13,929
State and local income taxes, net of federal tax benefit			2,433				2,354
Foreign-derived intangible income benefit			(891	)			(534	)
Non deductible executive compensation			572				1,038
Effect of lower foreign taxes			130				639
Adjustment for unrecognized tax positions			18				3
Valuation allowance			(1	)			(5,075	)
Other items, net			(1,005	)			1,170
Income tax expense		$	15,356			$	13,524
Effective tax rate			22.9	%			20.4	%

 

Income taxes paid, net of refunds received, for the year ended January 31, 2026 are as follows:

 

		January 31,
		2026
U.S. Federal		$	7,361
State
California			501
Other			1,871
Foreign
Other			158
Total		$	9,891

 

Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):

 

		January 31,				February 1,
		2026				2025
Deferred tax assets:
Operating lease liability		$	32,942			$	23,866
Deferred revenue			2,571				2,973
Intangible assets			2,539				2,747
Accrued compensation			2,113				1,624
Deferred compensation			1,070				1,034
Depreciation			739				918
Receivables write-offs			910				849
Net operating loss carryforwards			1,597				806
Inventories			976				674
Accrued expenses			573				329
Carryforward of tax credits			261				222
Other			296				68
Total gross deferred tax assets			46,587				36,110
Less: Valuation allowance			(1,552	)			(1,533	)
Total deferred tax assets, net of valuation allowance			45,035				34,577
Deferred tax liabilities:
Operating lease right-of-use assets			(30,683	)			(21,557	)
Depreciation			(5,211	)			(3,096	)
Deferred expense			(1,254	)			(1,436	)
Inventories			(516	)			(890	)
Other			(1	)			(2	)
Total deferred tax liabilities			(37,665	)			(26,981	)
Net deferred tax assets		$	7,370			$	7,596

 

As of January 31, 2026, the Company had gross NOL carryforwards of approximately $6.4 million, $5.3 million of which relate to the U.K. where NOLs have no expiration date, and $1.1 million of which relate to China where NOLs are carried forward for five years subsequent to the year in which the loss was incurred.

 

The Company continues to assert its investments in foreign subsidiaries are permanent in duration and it is not practical to estimate the income tax liability on the outside basis differences.

 

As of January 31, 2026, and February 1, 2025, the Company had no unrecognized tax benefits. As of February 3, 2024, the Company had total unrecognized tax benefits of $0.1 million, of which $0.1 million would favorably impact the Company’s provision for income taxes if recognized. In the fourth quarter of fiscal year 2024, the Company settled all unrecognized tax benefits of $0.1 million. The Company reviews its uncertain tax positions periodically and accrues interest and penalties accordingly. Accrued interest and penalties included within other liabilities in the consolidated balance sheets was $0.0 million for each of the years ended January 31, 2026, and February 1, 2025. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes within the consolidated statement of operations. For the years ended January 31, 2026, and February 1, 2025, the Company recognized an expense of $0.0 million and less than $0.1 million, respectively, for interest and penalties. 

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

		January 31,				February 1,
		2026				2025
Balance at beginning of year			-				66
Increases for prior year tax positions			-				8
Settlements			-				(74	)
Balance at end of year			-				-

 

The following tax years remain open in the Company’s major taxing jurisdictions as of January 31, 2026:

 

United States (Federal)	2022 through 2025
United Kingdom	2022 through 2025