Build-A-Bear Workshop: Why The Company Is Still Attractive Here

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]