wdstockAs the management of Build-A-Bear Workshop (NYSE:BBW) expected, the latest quarterly results the company released on May 30 were not as good as the ones in the same quarter last year. Despite the fact that management predicted that and reiterated in the last earnings call its guidance for yet another record-breaking year, the market’s response was abysmal, in what seems to be an overreaction, sending the stock down 14% that day and shedding an additional 8.5% since. With a pristine balance sheet, ...

Retail Expansion - Build-A-Bear Workshop opened a net of 37 retail experience locations in fiscal 2023 and expects to open at least 50 new locations in fiscal 2024, with over 35% of total stores now in non-traditional settings [80]. - As of May 4, 2024, Build-A-Bear had 357 corporately-managed stores globally, with 51% in an updated Discovery format [86]. - The company had 97 stores in operation at the end of the first quarter of 2024, up from 70 at the same time last year [87]. - The company anticipates signing additional master franchise agreements in the future, with 5 master franchise agreements currently covering 8 countries [88]. Financial Performance - Total revenues decreased by 4.4%, primarily due to a 6.9% decrease in North America, partially offset by a 14.1% increase in Europe [92]. - Net retail sales for the thirteen weeks ended May 4, 2024, were $107.9 million, a decrease of $4.2 million, or 3.8%, compared to the prior year [93]. - Retail gross margin dollars decreased by $2.7 million to $58.5 million, with a retail gross margin rate decrease of 40 basis points compared to the prior year [96]. - SG&A expenses increased to $47.6 million, or 41.5% of consolidated revenue, compared to $45.6 million, or 38.0% of consolidated revenue, in the prior year [97]. - EBITDA decreased by $4.1 million, or 18.3%, to $18.3 million from $22.4 million for the same period last year [100]. - Cash provided by operating activities decreased by $8.4 million to $10.4 million for the thirteen weeks ended May 4, 2024, compared to $18.8 million for the same period last year [105]. - International franchising revenue was $0.9 million, down from $1.3 million, primarily due to the timing of product shipments [96]. Shareholder Returns - The company returned $42 million to shareholders through special dividends and share repurchases, with a new quarterly cash dividend of $0.20 per share announced in March 2024 [82]. - The company utilized $9.2 million in cash to repurchase 343,406 shares during the thirteen weeks ended May 4, 2024, compared to $3.1 million for 132,385 shares in the same period of 2023 [115]. Cash Flow and Investments - Cash used in investing activities decreased by $0.6 million for the thirteen weeks ended May 4, 2024, compared to the same period in 2023, primarily due to lower capital expenditures on IT projects [108]. - Cash used in financing activities decreased by $11.1 million for the thirteen weeks ended May 4, 2024, mainly due to a special cash dividend of $22.1 million paid in the first quarter of 2023, compared to $2.9 million in the first quarter of 2024 [108]. - Capital spending for the thirteen weeks ended May 4, 2024, totaled $2.4 million, with an expected total of $18 to $20 million on capital expenditures for fiscal 2024 [114]. - As of May 4, 2024, the company had approximately $24.7 million available for borrowing under a secured revolving loan agreement with PNC Bank [110]. - The company had no outstanding borrowings as of May 4, 2024 [110]. Market and Operational Challenges - E-commerce sales have tripled since 2018, with 2023 sales reflecting a significant increase despite some softness during the year [81]. - The company’s cash flows have improved significantly, allowing for increased support of key initiatives while managing inflationary pressures and supply chain challenges [82]. - Build-A-Bear's digital transformation includes marketing and loyalty programs, contributing to the expansion of its total addressable market beyond children [81]. - The ongoing strategy focuses on expanding the brand through innovative experiences, including Build-A-Bear vending machines [80]. - The company emphasizes the importance of consumer engagement through personalized experiences and digital initiatives to capture a broader audience [79]. - Build-A-Bear's reliance on a few global supply chain vendors poses risks that could impact product availability and pricing [70]. - Inflationary pressures are expected to continue throughout fiscal 2024, particularly through wage increases, impacting business operations [116]. - The company is monitoring the impact of inflation on operations and may need to adjust prices to mitigate cost increases [116].

Core Viewpoint - Build-A-Bear Workshop, Inc. (BBW) has experienced a decline in financial performance, missing both revenue and earnings estimates in the latest quarterly results, leading to a significant drop in stock price [5][30]. Revenue Performance - BBW reported a 4.4% year-over-year decline in revenues, totaling $114.7 million, with net retail sales down 3.8% and consolidated e-commerce demand falling 11.3% [6][30]. - Commercial and international franchise revenues combined decreased by 13.7% compared to the same period last year, contributing only $6.9 million to total revenues [6][30]. Store Count and Demand - Despite an increase in store count and total square footage, BBW did not see a corresponding rise in revenues, indicating weakening demand for its products [8][10]. - The number of corporately-managed retail locations increased to 317 in North America and 357 in Europe, with a total of 77 franchised stores and 97 third-party retail locations [9]. Financial Metrics - Diluted EPS fell to $0.82 from $0.98, marking a decline of over 16%, primarily due to increased selling, general, and administrative (SG&A) expenses [14][30]. - SG&A expenses rose due to higher wages, inflationary pressures, and unfavorable expense timing, leading to lower operating income [14]. Management Outlook - Management remains optimistic, projecting revenue growth for the full year at a low- to mid-single-digit rate and plans to add at least 50 new locations [13][30]. Shareholder Returns - BBW has focused on returning value to shareholders through share buybacks, spending over $9 million on buybacks compared to $2.9 million on dividends, which is covered by cash flow from operations [18]. Valuation Perspective - BBW's stock is trading at a significant discount compared to the consumer discretionary sector median, but this may not indicate undervaluation when compared to its historical metrics [21][30]. - The company is not expected to outperform the broader market in the coming months due to deteriorating financial performance and an unstable macroeconomic environment [29][30].

Group 1: Promotions and Events - Build-A-Bear is offering a free Lil Cub teddy bear to the first 11 guests at participating locations on June 11, with additional Lil Cubs available for purchase at $11 each [1] - The company is celebrating International Day of Play with activities that promote creativity and fun for families and children in their workshops [3] Group 2: Philanthropic Efforts - Build-A-Bear Workshop has donated 11,000 reading buddy teddy bears to support childhood literacy and provide comfort to children and classrooms in need [2] - The Build-A-Bear Foundation focuses on children's literacy programs and has donated over $22 million and 1.5 million furry friends to charitable causes since 1997 [5] Group 3: Company Overview - Build-A-Bear is a global brand with over 500 interactive locations, emphasizing personal expression through creating custom teddy bears [4] - The company reported total revenues of $486.1 million for fiscal 2023, showcasing its strong market presence [4]

Financial Data and Key Metrics Changes - Total revenues for Q1 2024 were $114.7 million, a decrease of 4.4% year-over-year [8][20] - Pre-tax income was over $15 million, resulting in a pre-tax margin of 13.1% [8][20] - Earnings per share decreased by 16.3% to $0.82, reflecting the decline in pre-tax income [22] Business Line Data and Key Metrics Changes - Net retail sales decreased by 3.8%, with a significant 11.3% decline in web demand contributing to the overall revenue decline [20] - Commercial revenue, primarily from wholesale sales and international franchises, was down 13.7% due to timing of product shipments [21] Market Data and Key Metrics Changes - The company experienced solid repeat customer growth, but new customer acquisition, particularly online, faced challenges [20] - Web traffic was challenging during the quarter, with lower conversion rates impacting overall sales [36] Company Strategy and Development Direction - The company is focused on a three-pronged strategy: global expansion of experience locations, digital transformation, and leveraging brand awareness for growth [9][12][15] - Plans to open at least 50 net new experience locations through partner-operated, franchise, and corporately-operated models [10][23] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that Q1 results were slightly more challenging than anticipated but reiterated guidance based on expected execution of strategic plans [6][16] - The company expects total revenue to grow on a mid-single-digit basis for the full year, with growth weighted towards the back half of the year [23] Other Important Information - The company returned over $12 million to shareholders in Q1 through share repurchases and dividends [8][18] - The gross margin improved to 54.2%, an increase of 10 basis points year-over-year [21] Q&A Session Summary Question: Focus on Store Expansion - Management emphasized a focus on partner-operated expansion due to its asset-light model, which allows for less capital-intensive growth [28][29] Question: Web Demand Challenges - Management acknowledged ongoing web traffic challenges but noted strong conversion related to Valentine's Day products [36][39] Question: Expense Timing in Q1 - Elevated SG&A expenses in Q1 were attributed to marketing supplies and payroll timing, with expectations for normalization in future quarters [40][41] Question: International Market Strategy - The company aims to increase penetration in existing markets while also exploring new international opportunities [45] Question: Collaboration with Movie Releases - Management confirmed ongoing collaborations with theaters to drive traffic from movie releases to Build-A-Bear stores [48][49] Question: Confidence in Full-Year Guidance - Management expressed confidence in maintaining full-year guidance due to expected store expansions and easier comparisons in the latter half of the year [52]

Company Performance - Build-A-Bear reported quarterly earnings of $0.82 per share, missing the Zacks Consensus Estimate of $1.02 per share, and down from $0.98 per share a year ago, representing an earnings surprise of -19.61% [1] - The company posted revenues of $114.73 million for the quarter, missing the Zacks Consensus Estimate by 3.35%, and down from $120.05 million year-over-year [1] - Over the last four quarters, Build-A-Bear has surpassed consensus EPS estimates three times but has topped consensus revenue estimates only once [1] Stock Performance - Build-A-Bear shares have increased approximately 39.2% since the beginning of the year, significantly outperforming the S&P 500's gain of 10.4% [2] - The current consensus EPS estimate for the upcoming quarter is $0.60 on revenues of $112 million, while the estimate for the current fiscal year is $3.57 on revenues of $492.5 million [4] Industry Outlook - The Retail - Miscellaneous industry, to which Build-A-Bear belongs, is currently ranked in the top 35% of over 250 Zacks industries, indicating a favorable outlook [5] - Bath & Body Works, another company in the same industry, is expected to report quarterly earnings of $0.33 per share, with revenues anticipated to be $1.37 billion, down 2.1% from the year-ago quarter [6]

Financial Performance - First quarter revenues were $114.7 million, a decrease of 4.4% compared to the same period last year[1] - Net retail sales were $107.9 million, down 3.8%, while consolidated e-commerce demand decreased by 11.3%[2] - Pre-tax income was $15.0 million, representing 13.1% of total revenues, a decrease of 300 basis points from the previous year[2] - Diluted earnings per share (EPS) was $0.82, a decline of 16.3% compared to the prior year[2] - EBITDA for the 13 weeks ended May 4, 2024, was $18,261,000, compared to $22,357,000 for the same period in 2023, reflecting a decrease of 18.5%[22] - Retail gross margin for the 13 weeks ended May 4, 2024, was $58,453,000, representing a margin percentage of 54.2%, down from 54.6% in the same period last year[21] Shareholder Returns - The company returned $12.1 million to shareholders in the first quarter through share repurchases and dividends[1] Guidance and Future Plans - The company plans to open at least 50 new experience locations globally in fiscal 2024[7] - The company reaffirms its fiscal 2024 guidance, expecting total revenue growth on a low-to-mid-single-digit percentage basis[7] Cash and Assets - Cash and cash equivalents at the end of the first quarter totaled $38.2 million, an increase of 16.5% year-over-year[5] - Total current assets decreased to $123,850,000 from $127,772,000 in the previous quarter, a decline of 1.4%[19] - Total assets decreased to $265,276,000 from $272,325,000 in the previous quarter, a decline of 2.3%[19] Liabilities and Equity - Total liabilities decreased to $136,935,000 from $141,342,000 in the previous quarter, a reduction of 3.1%[19] - The total stockholders' equity decreased slightly to $128,341,000 from $129,662,000, a decline of 1%[19] Inventory and Locations - Inventory at quarter end was $64.0 million, reflecting a decline of 3.7% compared to the previous year[5] - The number of corporately-managed retail locations increased to 357, up from 349 year-over-year, indicating a growth of 2.3%[21] - The number of franchised stores increased to 77, up from 63 year-over-year, representing a growth of 22.2%[21] Capital Expenditures - Capital expenditures for fiscal 2024 are expected to be in the range of $18 million to $20 million[7] - Capital expenditures for the 13 weeks ended May 4, 2024, were $2,430,000, down from $3,065,000 in the same period last year, a decrease of 20.7%[21]

Core Viewpoint - Build-A-Bear Workshop (BBW) stock has increased over 30% year-to-date, outperforming major stock indexes due to consistent revenue and profit growth, stock buybacks, special dividends, and record gross and operating margins [3] - The company is projected to have a share value of approximately $41.34, indicating a potential upside of 43% from the current price of $30.00 [3] Company Overview - BBW is a retailer specializing in customizable stuffed animals, offering a unique customer experience with options for clothing, sounds, and scents [4] - The average transaction price in 2023 was $50.59, reflecting a 43% increase since 2013, which is higher than the typical inflation rate [4] - The company operates 369 corporately managed stores, 92 third-party stores, and 74 international stores, along with two e-commerce sites [4] Growth Opportunities - BBW has two primary growth avenues: the commercial segment and e-commerce sales [6] - The commercial segment, which includes wholesale activities and licensing, has seen sales grow from 2.08% in FY 2022 to around 3% in FY 2023, with a 61% growth in FY 2023 [6][8] - Third-party retail partnerships have resulted in 22 new store openings in FY 2024, with no closures, indicating strong potential for this segment [8][9] - E-commerce sales have tripled since 2018, driven by exclusive online offers and loyalty programs [9][10] Financial Performance - BBW has demonstrated robust financials with more than double the free cash flow over the past three years and increasing EBITDA and EBIT margins [12] - The company maintains low capital expenditures at 3.3% of revenue, contributing to its strong balance sheet and liquidity [12] Investment Thesis - The investment thesis is based on three principles: robust financials, a solid product with premium pricing, and significant growth potential [11] - The unique customization offerings allow BBW to charge premium prices, enhancing profit margins [12] - The company is expected to continue growing its high-margin segments, providing more cash flow for reinvestment or shareholder returns [13] Valuation - The estimated share price of $41.34 is based on a 10-year discounted cash flow analysis, projecting a CAGR of 4.5% driven by new store openings and revenue growth [14] - The valuation methods include an exit multiple of 5.7x EV/EBITDA and a growth perpetuity method, yielding implied share prices of $40.69 and $41.99 respectively [15]

Unveils Special Workshop Experience Designed to Transcend the Screen by Bringing IF Characters "To Life" for Fans ST. LOUIS, May 16, 2024 /PRNewswire/ -- Build-A-Bear Workshop, Inc. (NYSE: BBW) is thrilled to announce the in-store celebration of the upcoming Paramount Pictures feature film, IF, in theatres May 17, through its longstanding partnership with Paramount Consumer Products. Written and directed by John Krasinski, IF is about a girl who discovers that she can see everyone's imagery friends – and wh ...

Iconic Global Brand's New Commercial Celebrates the People, Moments and Furry Friends That Bring Us Together ST. LOUIS, May 9, 2024 /PRNewswire/ -- Build-A-Bear Workshop, Inc. (NYSE: BBW), is adding more heart to screens everywhere with the debut of its latest commercial. Premiering this week on CTV and streaming platforms like Disney+ and Hulu, the advertisement showcases the unique role the multi-generational brand's furry friends play in being there for the stuff people love most. This commercial marks a ...