Build-A-Bear Workshop(BBW) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q3 2025 grew nearly 3% to almost $123 million, while pre-tax income declined by $2 million to nearly $11 million, impacted by approximately $4 million in negative tariff effects [5][22] - Year-to-date revenue increased over 8% to over $375 million, with pre-tax income rising by 15% to almost $46 million, also inclusive of about $5 million in negative tariff impact [5][6] - Gross margin was 53.7%, a decline of 40 basis points compared to last year, primarily due to tariffs, which reduced gross profit by about $4 million in the quarter [24] Business Line Data and Key Metrics Changes - Net retail sales for the quarter were $112.3 million, an increase of 2.5% [22] - Direct-to-consumer sales showed solid performance in August and September but declined by 10.8% in October due to challenging comparisons from a strong license product launch last year [23] - Commercial revenue, primarily from wholesale sales, grew 4.2% for the quarter and 15.3% year-to-date, with expectations of over 20% growth for the year [24] Market Data and Key Metrics Changes - The company added 24 net new experience locations, with 70% of those openings outside the United States, bringing the total to 651 locations across 33 countries [8][10] - The Mini Beans product line saw a 60% increase in sales during Q3, approaching 3 million units sold [16][49] Company Strategy and Development Direction - The company aims to expand its experiential retail footprint, advance digital transformation, and leverage brand equity beyond workshops while returning capital to shareholders [7][14] - The strategy includes opening new co-branded locations and expanding the Mini Beans collection to various retail environments [11][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving record revenue of over $500 million for fiscal 2025, despite ongoing tariff headwinds [3][6] - The company is focused on mitigating tariff impacts through cost management and selective price increases, with expectations of a reduced tariff rate in the coming year [35][36] Other Important Information - The company returned over $26 million to shareholders through dividends and buybacks, contributing to more than 24% EPS growth for the first three quarters of the fiscal year [6][25] - The company maintained a strong balance sheet with $27.7 million in cash and no borrowing under its revolving credit facility [26] Q&A Session Summary Question: Can you elaborate on the tariff impact and mitigation strategies for next year? - Management indicated that tariffs for the current year are expected to total less than $11 million, with ongoing efforts to mitigate costs through partnerships and selective price increases [34][35] Question: How is the diversification in pricing affecting customer demographics? - Management noted that 40% of sales are to teens and adults, allowing for greater pricing flexibility and attracting a broader customer base [40][41] Question: What trends are observed in promotional activity this quarter? - Management stated that promotional activity was managed more stringently, resulting in lower discount rates compared to previous quarters [46][47] Question: Can you provide insights on Mini Beans sales and new product introductions? - Management expressed excitement about Mini Beans, highlighting a 60% increase in sales and expansion into various retail channels [48][49] Question: How do high-profile movie tie-ins affect sales? - Management acknowledged that while movie tie-ins can drive sales, the overall performance is influenced by a broader assortment of products [56][58] Question: Will having multiple locations in large malls provide leverage in lease negotiations? - Management confirmed that increased revenue and foot traffic from multiple locations can create leverage in discussions with mall partners [60][61]