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Build-A-Bear Workshop, Inc. Reiterates Annual Guidance as Profitable 'Pay Your Age' Events Positively Impact Business Trends

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Build-A-Bear Workshop, Inc. (NYSE:BBW) today reported results for the
fiscal 2018 second quarter and 26 weeks ended August 4, 2018. Given the
Company's previously announced fiscal year-end change, references to the
prior year are based on the unaudited recast results for the fiscal year
ended February 3, 2018.

Sharon Price John, Build-A-Bear Workshop President and Chief Executive
Officer, commented, "To truly understand our second quarter results, it
is important to realize that sales in the first nine weeks of the period
were below expectations, negatively impacting profit, while the final
four weeks, with the introduction of the ‘Pay Your Age' events,
including our ‘Count Your Candles' birthday program, far surpassed our
expectations. The surge of interest from the events delivered a
meaningful profit, although it was not enough to offset the start of the
quarter.

"The period also saw progress toward the transformation of our company
as we continued to successfully leverage the power of our brand with the
goal of diversifying our real estate portfolio and revenue streams. With
that in mind, we are pleased to share that we are continuing our
strategy of expanding into a variety of high-traffic tourist areas,
including a new stand-alone location at Navy Pier in Chicago with plans
to open at Fashion Show in Las Vegas later this year. We also expect to
open a shop-in-shop location in New York City's Rockefeller Center
inside the FAO Schwarz store, which is slated to open in November.
Separately, we expect to increase our global presence with the recent
addition of a new franchisee in India. And, finally, we have secured
several new outbound brand licensing arrangements covering various
consumer categories, with product expected to be available across a
number of retailers ahead of the holidays.

"I remain energized about the opportunities that lie ahead to capitalize
on the brand strength of Build-A-Bear as we look to share our memorable
experience with more consumers, more often, around the world," concluded
Ms. John.

Second Quarter 2018 Highlights (13 weeks ended August 4, 2018,
compared to the 13 weeks ended July 29, 2017):

  • Consolidated revenues were $83.2 million compared to $79.2 million in
    the fiscal 2017 second quarter, an increase of $4.0 million;
  • Consolidated revenues rose 5.0%, including an 8.7% increase in North
    America and a 14.9% decrease in Europe, and also inclusive of a 14.4%
    increase in consolidated e-commerce. Notably, the European results
    reflected the impact caused by the ongoing uncertainty surrounding
    Brexit, as well as the May 2018 implementation of new privacy laws,
    which restricted our ability to directly market to guests;
  • Consolidated net retail sales were $81.0 million, an increase of 6.1%,
    compared to $76.4 million in the fiscal 2017 second quarter;
  • Retail gross margin dollars increased $0.4 million to $34.4 million
    compared to the fiscal 2017 second quarter, while the retail gross
    margin rate declined 210 basis points to 42.5%. The rate decline was
    driven by contraction in merchandise margin due to promotional
    activity associated with the Pay Your Age events covering the final
    four weeks of the quarter, partially offset by the leverage of fixed
    occupancy costs. The decrease in gross margin rate also included a 50
    basis-point negative impact from the adoption of accounting changes in
    revenue recognition, as expected;
  • Selling, general and administrative expenses were $37.9 million, or
    45.6% of total revenues, a 40 basis-point increase compared to the
    fiscal 2017 second quarter. The increase was primarily driven by store
    labor and supply costs related to the stronger sales trend at the end
    of the quarter as well as unfavorable currency exchange rates;
  • Pre-tax loss was $2.5 million compared to a pre-tax loss of $0.2
    million in the fiscal 2017 second quarter;
  • Income tax benefit was $0.7 million with an effective tax rate of
    29.3%, compared to $0.2 million in the fiscal 2017 second quarter; and
  • Net loss was $1.8 million, or $0.12 per share, compared to a net
    income of $44 thousand, or $0.00 per diluted share, in the fiscal 2017
    second quarter.

Store Activity:

In the second quarter of fiscal 2018, the Company opened 13 locations
and remodeled or reformatted 11 stores into a Discovery format, ending
the quarter with 34% of its store base in an updated Discovery design.
As of August 4, 2018, the Company operated 365 corporately-managed
locations, including 307 in North America and 58 outside of North
America. The Company's international franchisees ended the quarter with
96 stores in 10 countries.

Balance Sheet:

As of August 4, 2018, cash and cash equivalents totaled $20.4 million.
The Company ended the quarter with no borrowings under its revolving
credit facility. Total inventory at quarter-end was $47.8 million
compared to $59.4 million at the end of the second quarter of 2017, a
decrease of 19.4%, primarily due to the increase in sales resulting from
the Pay Your Age events late in the quarter. In the second quarter of
fiscal 2018, capital expenditures totaled $4.1 million and depreciation
and amortization were $4.0 million.

Share Repurchase:

The Company repurchased nearly 91,000 shares of its common stock for
$0.7 million during the second quarter of fiscal 2018. As of August 4,
2018, the Company had $9.3 million remaining on the share repurchase
authorization that was adopted in August 2017.

Fiscal Year Change:

As previously disclosed, the Company's Board of Directors approved a
change in the Company's fiscal year-end, which previously ended on the
Saturday closest to December 31, to the Saturday closest to January 31.
This change was effective following the end of the Company's 2017 fiscal
year.

Accounting Changes Impacting Revenue Recognition:

On December 31, 2017, the Company adopted "Revenue from Contracts with
Customers" (Accounting Standard Codification "Topic 606"), as required.
While the majority of the Company's revenues were not impacted by Topic
606, the timing of the recognition of breakage revenue for certain gift
cards changed. Upon adoption, the Company recorded a pre-tax cumulative
effect increase to retained earnings of approximately $12.3 million
representing gift card breakage revenue not previously recognized that
was accelerated due to Topic 606. The change will negatively impact the
Company's fiscal 2018 total revenue and pre-tax income by an estimated
$3.9 million with the remaining balance of the cumulative effect
adjustment predominantly impacting fiscal years 2019 and 2020.

2018 Expectations (52 weeks ending February 2, 2019, compared to the
53 weeks ended February 3, 2018):

The Company is reiterating its guidance for fiscal year 2018. On a GAAP
basis, the Company currently expects:

  • Total revenue for the year to be in the range of $345 to $355 million.
    For the remainder of the fiscal year, the Company expects total
    revenue to be flat to a slight increase compared to the same unaudited
    recast period in the fiscal year ended February 3, 2018 excluding;
    • the $2.6 million balance of the negative impact of the previously
      mentioned accounting changes; and
    • the revenue from the one extra week included in the recast 2017
      fiscal year;
  • Pre-tax income to be in the range of $8.0 million to $11.5 million. As
    a reminder, 2018 guidance reflects an estimated $3.9 million negative
    impact due to the adoption of accounting changes in revenue
    recognition;
  • Diluted earnings per share to be in the range of $0.40 to $0.57;
  • Capital expenditures to be in the range of $15 to $18 million with
    depreciation and amortization in the range of $16 to $17 million; and
  • To end the year with cash and cash equivalents in the range of $25 to
    $30 million.

Today's Conference Call Webcast:

Build-A-Bear Workshop will host a live internet webcast of its quarterly
investor conference call at 9 a.m. ET today. The audio broadcast may be
accessed at the Company's investor relations website, http://IR.buildabear.com.
The call is expected to conclude by 10 a.m. ET.

A replay of the conference call webcast will be available in the
investor relations website for one year. A telephone replay will be
available beginning at approximately noon ET today until midnight ET on
September 6, 2018. The telephone replay is available by calling (844)
512-2921. The access code is 13682484.

About Build-A-Bear

Build-A-Bear is a global brand kids love and parents trust that seeks to
add a little more heart to life. Build-A-Bear Workshop has over 400
stores worldwide where guests can create customizable furry friends,
including corporately-managed stores in the United States, Canada,
China, Denmark, Ireland, Puerto Rico, and the United Kingdom, and
franchise stores in Africa, Asia, Australia, Europe, Mexico and the
Middle East. In 2018, Build-A-Bear was named to the FORTUNE 100 Best
Companies to Work For® list for the 10th year in a row.
Build-A-Bear Workshop, Inc. (NYSE:BBW) posted total revenue of $357.9
million in fiscal 2017. For more information, visit the Investor
Relations section of buildabear.com.

Forward-Looking Statements

This press release contains certain statements that are, or may be
considered to be, "forward-looking statements" for the purpose of
federal securities laws, including, but not limited to, statements that
reflect our current views with respect to future events and financial
performance. We generally identify these statements by words or phrases
such as "may," "might," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "intend," "predict," "future," "potential" or
"continue," the negative or any derivative of these terms and other
comparable terminology. All of the information concerning the potential
outcome of exploring strategic alternatives, our future liquidity,
future revenues, margins and other future financial performance and
results, achievement of operating of financial plans or forecasts for
future periods, sources and availability of credit and liquidity, future
cash flows and cash needs, success and results of strategic initiatives
and other future financial performance or financial position, as well as
our assumptions underlying such information, constitute forward-looking
information.

These statements are based only on our current expectations and
projections about future events. Because these forward-looking
statements involve risks and uncertainties, there are important factors
that could cause our actual results, level of activity, performance or
achievements to differ materially from the results, level of activity,
performance or achievements expressed or implied by these
forward-looking statements, including those factors discussed under the
caption entitled "Risks Related to Our Business" and "Forward-Looking
Statements" in our Annual Report on Form 10-K filed with the Securities
and Exchange Commission ("SEC") on March 15, 2018 and other periodic
reports filed with the SEC which are incorporated herein.

All of our forward-looking statements are as of the date of this Press
Release only. In each case, actual results may differ materially from
such forward-looking information. We can give no assurance that such
expectations or forward-looking statements will prove to be correct. An
occurrence of or any material adverse change in one or more of the risk
factors or other risks and uncertainties referred to in this Press
Release or included in our other public disclosures or our other
periodic reports or other documents or filings filed with or furnished
to the SEC could materially and adversely affect our continuing
operations and our future financial results, cash flows, available
credit, prospects and liquidity. Except as required by law, the Company
does not undertake to publicly update or revise its forward-looking
statements, whether as a result of new information, future events or
otherwise.

All other brand names, product names, or trademarks belong to their
respective holders.

 
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Income
(dollars in thousands, except share and per share data)
                     
13 Weeks 13 Weeks
Ended Ended
August 4, % of Total July 29, % of Total
2018   Revenues (1) 2017   Revenues (1)
Revenues:
Net retail sales $ 81,037 97.4 $ 76,383 96.5
Commercial revenue 1,055 1.3 2,086 2.6
International franchising 1,086   1.3   711   0.9  
Total revenues 83,178   100.0   79,180   100.0  
Cost of merchandise sold:
Cost of merchandise sold - retail (1) 46,601 57.5 42,339 55.4
Cost of merchandise sold - commercial (1) 591 56.0 978 46.9
Cost of merchandise sold - international franchising (1) 587   54.1   257   36.1  
Total cost of merchandise sold 47,779   57.4   43,574   55.0  
Consolidated gross profit 35,399 42.6 35,606 45.0
 
Selling, general and administrative expense 37,928 45.6 35,780 45.2
Interest expense (income), net 16   0.0   (10 ) (0.0 )
Loss before income taxes (2,545 ) (3.1 ) (164 ) (0.2 )
Income tax benefit (745 ) (0.9 ) (208 ) (0.3 )
Net income (loss) $ (1,800 ) (2.2 ) $ 44   0.1
 
Income (loss) per common share:
Basic $ (0.12 ) $ 0.00  
Diluted $ (0.12 ) $ 0.00  
Shares used in computing common per share amounts:
Basic 14,618,582 15,646,014
Diluted 14,618,582 15,871,274
 
     
(1) Selected statement of income data expressed as a percentage of total
revenues, except cost of merchandise sold - retail, cost of
merchandise sold - commercial and cost of merchandise sold -
international franchising that are expressed as a percentage of net
retail sales, commercial revenue and international franchising,
respectively. Percentages will not total due to cost of merchandise
sold being expressed as a percentage of net retail sales, commercial
revenue or international franchising and immaterial rounding.
 

 
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Income
(dollars in thousands, except share and per share data)
                 
26 Weeks 26 Weeks
Ended Ended
August 4, % of Total July 29, % of Total
2018   Revenues (1) 2017   Revenues (1)
Revenues:
Net retail sales $ 162,462 97.7 $ 165,126 96.9
Commercial revenue 2,074 1.2 4,124 2.4
International franchising 1,826   1.1   1,133   0.7  
Total revenues 166,362   100.0   170,383   100.0  
Costs and expenses:
Cost of merchandise sold - retail (1) 91,986 56.6 88,795 53.8
Cost of merchandise sold - commercial (1) 1,070 51.6 2,079 50.4
Cost of merchandise sold - international franchising (1) 919   50.3   257   22.7  
Total cost of merchandise sold 93,975   56.5   91,131   53.5  
Consolidated gross profit 72,387 43.5 79,252 46.5
 
Selling, general and administrative expense 74,265 44.6 75,008 44.0
Interest expense (income), net 21   0.0   (16 ) (0.0 )
Income (loss) before income taxes (1,899 ) (1.1 ) 4,260 2.5
Income tax expense (benefit) (453 ) (0.2 ) 1,587   0.9  
Net income (loss) $ (1,446 ) (0.9 ) $ 2,673   1.6
 
Income (loss) per common share:
Basic $ (0.10 ) $ 0.17  
Diluted $ (0.10 ) $ 0.17  
Shares used in computing common per share amounts:
Basic 14,600,578 15,603,909
Diluted 14,600,578 15,785,939
 
     
(1) Selected statement of income data expressed as a percentage of total
revenues, except cost of merchandise sold - retail, cost of
merchandise sold - commercial and cost of merchandise sold -
international franchising that are expressed as a percentage of net
retail sales, commercial revenue and international franchising,
respectively. Percentages will not total due to cost of merchandise
sold being expressed as a percentage of net retail sales, commercial
revenue or international franchising and immaterial rounding.
 

 
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
                   
August 4, December 30, July 29,
  2018     2017     2017  
ASSETS
Current assets:
Cash and cash equivalents $ 20,398 $ 30,445 $ 12,236
Inventories 47,833 53,136 59,368
Receivables 8,693 13,302 8,357
Prepaid expenses and other current assets   13,686     13,346     12,789  
Total current assets 90,610 110,229 92,750
 
Property and equipment, net 76,157 77,751 75,854
Deferred tax assets 4,847 6,381 9,879
Other intangible assets, net 1,013 995 1,302
Other assets, net   2,182     2,633     2,500  
Total Assets $ 174,809   $ 197,989   $ 182,285  
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,046 $ 18,942 $ 16,388
Accrued expenses 12,482 15,189 10,806
Gift cards and customer deposits 14,502 33,926 28,919
Deferred revenue and other   2,154     1,806     1,887  
Total current liabilities   44,184     69,863     58,000  
 
Deferred rent 18,342 17,906 17,838
Deferred franchise revenue 1,100 1,208 529
Other liabilities 1,854 1,697 1,554
 
 
Stockholders' equity:
Common stock, par value $0.01 per share 150 155 160
Additional paid-in capital 67,383 68,962 69,936
Accumulated other comprehensive loss (12,015 ) (11,562 ) (11,901 )
Retained earnings   53,811     49,760     46,169  
Total stockholders' equity   109,329     107,315     104,364  
Total Liabilities and Stockholders' Equity $ 174,809   $ 197,989   $ 182,285  
 

 
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Selected Financial and Store Data
(dollars in thousands)
                   
13 Weeks 13 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended
August 4, July 29, August 4, July 29,
2018   2017   2018   2017  
 
Other financial data:
Retail gross margin ($) (1) $ 34,436 $ 34,044 70,476 $ 76,331
Retail gross margin (%) (1) 42.5 % 44.6 % 43.4 % 46.2 %
Capital expenditures (2) $ 4,081 $ 5,518 $ 7,111 $ 9,326
Depreciation and amortization $ 4,023 $ 3,985 $ 8,138 $ 7,892
 
Store data (3):
Number of corporately-managed retail locations at end of period

North America

307 294
Europe 57 58
Asia 1   1  
Total corporately-managed retail locations 365   353  
 
Number of franchised stores at end of period 96 89
 
Corporately-managed store square footage at end of period (4)
North America 721,374 730,134
Europe 79,236 82,585
Asia 1,750   1,750  
Total square footage 802,360   814,469  
 
     
(1) Retail gross margin represents net retail sales less cost of
merchandise sold - retail. Retail gross margin percentage represents
retail gross margin divided by net retail sales.
(2) Capital expenditures represents cash paid for property, equipment,
other assets and other intangible assets.
(3) Excludes e-commerce. North American stores are located in the United
States, Canada and Puerto Rico. In Europe, stores are located in the
United Kingdom, Ireland and Denmark. In Asia, the store is located
in China.
(4) Square footage for stores located in North America is leased square
footage. Square footage for stores located in Europe is estimated
selling square footage.
 

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