Build-A-Bear Workshop, Inc. Reports Increased Comparable Store Sales and Improved Operating Performance in Third Quarter Fiscal 2013

Build-A-Bear Workshop
Published: October 24th, 2013

Consolidated comparable store sales increases 6.4%
Gross margin expands 360 basis points to 40.1% from 36.5% in the 2012 third quarter
Pre-tax loss improves to $1.1 million from a pre-tax loss of $4.5 million in the 2012 third quarter

ST. LOUIS - (BUSINESS WIRE) - Oct. 24, 2013 - Build-A-Bear Workshop, Inc. (NYSE:BBW), an interactive entertainment retailer, today reported results for the third quarter and first nine months ended September 28, 2013.

Third Quarter 2013 Highlights (13 weeks ended September 28, 2013):

Consolidated net retail sales were $83.6 million while operating 31 fewer stores compared to $84.3 million in the fiscal 2012 third quarter, a decrease of 0.9%, excluding the impact of foreign exchange;
Consolidated comparable store sales increased 6.4% and included a 7.6% increase in North America and a 2.3% increase in Europe;
Retail gross margin expanded 360 basis points to 40.1%, compared to 36.5% in the 2012 third quarter;
Pre-tax loss improved to $1.1 million, including $0.6 million in management transition and store closing costs, from a pre-tax loss of $4.5 million in the 2012 third quarter;
Net loss was $1.4 million, or $0.08 per share, an improvement from a net loss of $4.3 million, or $0.26 per share in the fiscal 2012 third quarter; and
Adjusted net loss was $0.8 million, or $0.05 per share, an improvement from adjusted net loss of $4.2 million or $0.25 per share in the fiscal 2012 third quarter. (See Reconciliation of Net Loss to Adjusted Net Loss.)

Sharon Price John, Build-A-Bear Workshop’s Chief Executive Officer and Chief President Bear commented, "The third quarter marked our fourth consecutive period of comparable store sales growth in North America and our third consecutive increase in Europe. Stronger same store sales productivity, along with reduced promotions and disciplined expense management, drove an improvement in our operating performance.

"We have a solid plan in place and I expect to capitalize on the upcoming holiday season with compelling product and marketing initiatives. We are establishing a foundation to deliver our stated objective of sustainable profitable growth and will continue to leverage the strength of the Build-A-Bear Workshop brand, our core competencies and infrastructure to increase shareholder value," Ms. John concluded.

Additional Third Quarter 2013 Details:

Total revenues were $84.8 million while operating 31 fewer stores compared to $86.0 million in the 2012 third quarter, a decrease of 2.0%, excluding the impact of foreign exchange;
Consolidated e-commerce sales rose 1.1%, excluding the impact of foreign exchange;
Selling, general and administrative expense ("SG&A") was $35.8 million, or 42.2% of total revenues, including $0.6 million in management transition and store closing expenses. This compares to $36.6 million, or 42.5% of total revenues in the fiscal 2012 third quarter.

First Nine Months 2013 (39 weeks ended September 28, 2013):

Total revenues were $271.0 million while operating 31 fewer stores compared to $262.8 million in the first nine months of 2012, an increase of 3.2%, excluding the impact of foreign exchange;
Consolidated net retail sales were $266.9 million, compared to $258.5 million in the first nine months of fiscal 2012, an increase of 3.4%, excluding the impact of foreign exchange;
Consolidated comparable store sales increased 8.2% and included a 9.1% increase in North America and a 4.6% increase in Europe;
Consolidated e-commerce sales rose 4.7%, excluding the impact of foreign exchange;
Retail gross margin expanded 230 basis points to 39.6%, compared to 37.3% in the first nine months of 2012;
SG&A was $116.5 million, or 43.0% of revenues, including $3.8 million in management transition and store closing expenses, compared to $113.8 million, or 43.3% in the first nine months of 2012;
Pre-tax loss improved to $7.1 million from a pre-tax loss of $13.9 million in the first nine months of 2012;
Net loss was $7.6 million or $0.46 per share, an improvement from a net loss of $12.8 million, or $0.79 per share in the first nine months of fiscal 2012; and
Adjusted net loss was $3.8 million or $0.23 per share, an improvement from adjusted net loss of $12.1 million or $0.74 per share in the fiscal 2012 third period. (See Reconciliation of Net Loss to Adjusted Net Loss.)

Store Activity

During the quarter, the Company closed six stores and opened three locations to end the period with 320 company-owned stores – 260 in North America and 60 in Europe. (See Company-Owned Store Activity Schedule.) The Company remodeled five stores in its new design format. The Company’s international franchisees ended the quarter with 85 stores.

The Company expects to close an additional 10 to 25 stores in fiscal 2013 and 2014 and along with opportunistic store openings expects to reach a store count of approximately 250 stores in North America. These select store closures are expected to transfer approximately 20% of sales to other stores in the same markets, which is consistent with the average transfer rate of the stores closed since 2012.

Balance Sheet

The Company ended the 2013 third quarter with no borrowings under its revolving credit facility. As of September 28, 2013, cash and cash equivalents totaled $13.8 million, the majority of which was domiciled outside the U.S. Total inventory at quarter end was $56.7 million compared to $54.9 million at quarter end 2012. Inventory per square foot increased 12.1%, as compared to the prior year period. The $1.8 million increase was driven by the timing of receipts and additional inventory to support the Company’s fourth quarter sales plan. In fiscal 2013, the Company expects capital expenditures to be approximately $20 million to support the refresh and repositioning of stores and investment in infrastructure and depreciation and amortization is expected to be approximately $20 million.

Accomplishments toward Long Term Objectives:

Introduce a new store design – At quarter end, the Company operated 19 newly imagined stores which continued to drive average comparable store sales increases of nearly 20% in the third quarter. The Company expects to operate approximately 30 locations in this new store format by the end of 2013.
Improve store productivity and profitability – The Company has closed 44 stores since the beginning of 2012 transferring over 20% of those sales to other stores in the same markets. In addition, the Company reduced the square footage of 19 other stores since the beginning of 2012 by remodeling and moving them to smaller locations within the same malls. Organic sales growth along with these activities have contributed to an approximate 12% increase in sales per square foot for the nine months ended September 28, 2013, compared to the nine months ended September 29, 2012.
Increase shopping frequency – The Company reintroduced brand building TV advertising in its U.S. markets beginning in mid-October 2012 and rebalanced the mix of marketing in Europe to drive customer traffic, further engage existing guests and attract new guests to its stores. This contributed to the improvement in sales trend with comparable store sales increasing 9.1% in North America and 4.6% in Europe in the first nine months of 2013.
Reinforce Build-A-Bear Workshop as a top destination for gifts – The Company capitalized on its brand advertising to drive the "gift of experience" which led to a 30% increase in the issuance of gift cards at its stores on a consolidated basis during last year’s peak fourth quarter gifting period, followed by a 19% increase in the first nine months of 2013.
Optimize the Company’s global presence – The Company’s franchisees operated 85 international locations as of September 28, 2013. By the end of fiscal 2013, franchisees are expected to have opened approximately 11 locations offset by select closures.
Improve cost efficiencies – The Company expects to realize net cost savings of approximately $10 million in fiscal 2013, which include expense reduction initiatives and savings from closed stores.

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 Web site, 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 Web site for one year. A telephone replay will be available beginning at approximately noon ET today until midnight ET on November 8, 2013. The telephone replay is available by calling (858) 384-5517. The access code is 10000475.

About Build-A-Bear Workshop, Inc.

Build-A-Bear Workshop, Inc. is the only global company that offers an interactive make-your-own stuffed animal retail-entertainment experience. There are more than 400 Build-A-Bear Workshop stores worldwide, including company-owned stores in the U.S., Puerto Rico, Canada, the United Kingdom and Ireland, and franchise stores in Europe, Asia, Australia, Africa, the Middle East, Mexico and South America. Founded in St. Louis in 1997, Build-A-Bear Workshop is the leader in interactive retail. Brands include make-your-own Major League Baseball® mascot in-stadium locations, and Build-A-Dino® stores. Build-A-Bear Workshop extends its in-store interactive experience online with its award winning virtual world Web site at bearville.com®. The company was named to the FORTUNE 100 Best Companies to Work For® list for the fifth year in a row in 2013. Build-A-Bear Workshop (NYSE: BBW) posted total revenue of $380.9 million in fiscal 2012. For more information, call 888.560.BEAR (2327) or visit the company's award-winning Web site at buildabear.com®.

Forward-Looking Statements

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. These risks and uncertainties include, without limitation, those detailed under the caption “Risk Factors” in our annual report on Form 10-K for the year ended December 29, 2012, as filed with the SEC, and the following:

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

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The Company's long term real estate goal is to bring its stores back to best in class productivity and profitability. The Company currently expects to have approximately 310 Build-A-Bear Workshop stores, 250 in North America and 60 in the United Kingdom and Ireland, at the end of fiscal 2014. The Company currently expects to reach this level with the closure of 10 to 25 additional stores through 2014, primarily in North America, along with limited, opportunistic store openings. Locations to close and the timing of the closures are subject to ongoing negotiations and overall economic considerations as market repositioning and optimization plans are continually reevaluated.

Source: Build-A-Bear Workshop, Inc.

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