Build-A-Bear Workshop, Inc. Reports an $18 Million Improvement in Operating Performance for the 2014 Fiscal Year

Build-A-Bear Workshop
Published: February 19th, 2015

Consolidated comparable store sales increase 9.9% for the 2014 fourth quarter and increase 1.6% for the fiscal year
Retail gross margin expands 730 basis points for the fourth quarter and 450 basis points for the 2014 fiscal year
Pre-tax income improves to $12.6 million for the 2014 fourth quarter and to $16.0 million for the 2014 fiscal year from a pre-tax loss of $2.1 million for the 2013 fiscal year

ST. LOUIS - (BUSINESS WIRE) - Feb. 19, 2015 - Build-A-Bear Workshop, Inc. (NYSE:BBW) today reported results for the fourth quarter and fiscal year ended January 3, 2015.

Fourth Quarter 2014 Highlights (14 weeks ended January 3, 2015):

Consolidated net retail sales were $130.0 million, compared to $106.3 million in the fiscal 2013 fourth quarter (13 weeks ended December 28, 2013);
Retail gross margin expanded 730 basis points to 52.2% compared to 44.9% in the fiscal 2013 fourth quarter;
Net income improved to $11.8 million, or $0.67 per diluted share, compared to net income of $5.4 million, or $0.31per diluted share in the fiscal 2013 fourth quarter; and
Adjusted net income improved to $12.8 million, or $0.73 per diluted share, compared to adjusted net income of $6.9 million, or $0.40 per diluted share in the fiscal 2013 fourth quarter. (See Reconciliation of Net Income (Loss) to Adjusted Net Income.)

Sharon Price John, Build-A-Bear Workshop’s Chief Executive Officer commented, “The fourth quarter marked a strong finish to the year for Build-A-Bear Workshop. In the quarter, we delivered a 9.9% increase in consolidated comparable store sales, a 730 basis point expansion in retail gross margin and adjusted net income of $12.8 million up from $6.9 million in the fourth quarter of 2013. During the year, we made steady progress toward our stated long term sales productivity and profitability goals with sales growth across geographies, increased sales per square foot and expanded four-wall contribution margin.

“We are leveraging our momentum from the fourth quarter and are off to a positive start in 2015,” Ms. John continued. “Our priorities in the year ahead are focused on continuing the disciplined execution of our strategy while capitalizing on our powerful brand to generate incremental revenue and profit streams for our Company. During the year, we expect to see additional progress toward our goal to drive continuous improvement and sustained profitable growth.”

Additional Fourth Quarter 2014 Details (14 weeks ended January 3, 2015):

Total revenues were $131.5 million compared to $108.1 million in the fiscal 2013 fourth quarter (13 weeks endedDecember 28, 2013);
Consolidated e-commerce sales rose 9.0%, excluding the impact of foreign exchange;
Selling, general and administrative expense (“SG&A”) was $56.4 million, or 42.9% of total revenues, including $1.0 million in management transition, asset impairment and store closing expenses. This compares to $44.3 million, or 40.9% of total revenues in the fiscal 2013 fourth quarter, including $1.5 million in management transition, store closing and asset impairment expenses. Excluding these costs in both periods, SG&A increased 260 basis points to 42.1% of total revenues in the fiscal 2014 fourth quarter; and
Pre-tax income improved to $12.6 million compared to pre-tax income of $5.0 million in the 2013 fourth quarter.

Fiscal Year 2014 (53 weeks ended January 3, 2015):

Total revenues were $392.4 million compared to $379.1 million in fiscal 2013 (52 weeks ended December 28, 2013);
Consolidated net retail sales were $387.7 million, compared to $373.2 million in the 2013 fiscal year;
Consolidated comparable store sales increased 1.6% and included a 1.4% increase in North America and a 2.3% increase in Europe (full year comparable store sales are compared to the 53-week period ended January 4, 2014);
Consolidated e-commerce sales rose 3.5%, excluding the impact of foreign exchange;
Retail gross margin expanded 450 basis points to 45.6% compared to 41.1% in fiscal 2013;
SG&A was $164.4 million, or 41.9% of revenues, including $2.2 million in management transition, asset impairment and store closing expenses, compared to $160.7 million, or 42.4% of revenues in fiscal 2013, including $5.3 million in management transition, asset impairment and store closing expenses. Excluding these costs in both periods, SG&A increased 30 basis points to 41.3% of total revenues in fiscal 2014;
Pre-tax income improved to $16.0 million from a pre-tax loss of $2.1 million in fiscal 2013;
Net income improved to $14.4 million or $0.81 per diluted share compared to net loss of $2.1 million or $0.13 per share in fiscal 2013; and
Adjusted net income improved to $16.5 million or $0.93 per diluted share, compared to adjusted net income of $2.9 million or $0.17 per diluted share in fiscal 2013. (See Reconciliation of Net Income (Loss) to Adjusted Net Income.)

Store Activity

During the year, the Company closed 15 stores and opened 16 locations to end the year with 324 Company-owned stores including 265 in North America and 59 in Europe. (See Company-Owned Store Activity Schedule.) The Company’s international franchisees ended the year with 71 stores.

Balance Sheet

As of January 3, 2015, cash and cash equivalents totaled $65.4 million. The Company ended the 2014 fourth quarter with no borrowings under its revolving credit facility. Total inventory at year end was $51.9 millioncompared to $50.2 million at 2013 year end. Inventory per square foot increased 4.9% as compared to the prior year period. In fiscal 2014, capital expenditures were $10.9 million; depreciation and amortization was $18.1 million. In fiscal 2015, the Company expects capital expenditures to be approximately $20 million to $25 millionto support the refresh and repositioning of stores as well as investment in infrastructure. Depreciation and amortization is expected to be approximately $16 million to $18 million.

2015 Key Strategic Initiatives

To increase shareholder value, the Company will begin to evolve from its stated goal of “sustained profitability” to “sustained profitable growth”. Through a combination of continuous improvement of current efforts andstrategic expansion into additive opportunities for each of the key initiatives outlined below, the Company expects to deliver both incremental revenue and profit. The four key initiatives are:

Expanding into More Places

The Company intends to continuously improve its real estate model by strategically evolving its store portfolio to align with market trends while selectively opening new locations and systematically refreshing its store base. To this end, the Company plans to open additional stores in high potential destinations such as tourist locations, outlet malls and shop-in-shops, which have proven more productive than traditional mall stores.

The Company expects to strategically expand its international presence by leveraging the improving strength in its company-owned stores to restructure and extend its international footprint. In 2014, the Company added a new franchisee in Turkey and restructured and expanded its franchise agreement inGermany with the addition of two countries, Switzerland and Austria. In 2015, the Company plans to enter new markets with both a redesigned franchise model and organic corporate expansion.

Targeting More People

The Company intends to continuously grow its business with its core three to twelve year-old consumer segment which represents a majority of current revenue. The Company will focus on initiatives that drive trial and increase repeat visits with an evolved segmentation, product development and marketing strategy.

The Company expects to strategically grow sales to consumers over twelve years-old with a focus on key categories including gift-giving, affinity and collectibles. This consumer segment currently represents over 20% of sales and has a tendency to over-index on less price-sensitive “gift-able” and on-line purchases. Therefore, the Company intends to leverage its e-commerce business to efficiently target these consumers.

Developing More Products

The Company intends to continuously improve and extend its efforts to successfully develop high impact product stories coupled with integrated marketing programs that tend to garner higher price points, drive add-on purchases and create “play beyond the plush”.

The Company also plans to strategically expand its presence and create new sales and profit streams by launching an out-bound licensing program to leverage its strong brand equity. Licensing will enable the Company to extend its brand reach with new offerings in relevant categories and will provide consumers with “products beyond the plush”.

Driving More Profitability

The Company expects to strategically expand its profitability by prioritizing incremental growth initiatives, like those discussed above, that leverage existing infrastructure, are primarily royalty-based, and/or allow for discreet pricing and are therefore comparatively margin-accretive.

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. ETtoday. 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 February 26, 2015. The telephone replay is available by calling (877)-870-5176. The access code is 13599885.

About Build-A-Bear Workshop, Inc.

Founded in St. Louis in 1997, Build-A-Bear Workshop, Inc. is the only global company that offers an interactive make-your-own stuffed animal retail-entertainment experience. There are approximately 400 Build-A-Bear Workshop stores worldwide, including company-owned stores in the U.S., Puerto Rico, Canada, the United Kingdom, Ireland and Denmark, and franchise stores in Europe, Asia, Australia, Africa, the Middle East, andMexico. The Company was named to the FORTUNE 100 Best Companies to Work For® list for the sixth year in a row in 2014. Build-A-Bear Workshop (NYSE: BBW) posted total revenue of $392.4 million in fiscal 2014. For more information, call 888.560.BEAR (2327) or visit the Investor Relations section of its Web site at buildabear.com®.

Forward-Looking Statements

This press release contains forward looking statements that involve risks and uncertainties and the Company’s 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 the Company’s annual report on Form 10-K for the year ended December 28, 2013, as filed with the SEC, and the following:

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SOURCE Build-A-Bear Workshop, Inc.

Contacts:

Voin Todorovic
Build-A-Bear Workshop
Investor Relations
314.423.8000 x5221

Tanya Coventry-Strader
Build-A-Bear Workshop
Media Relations
314.423.8000 x5293

About Build-A-Bear Workshop

Founded in St. Louis in 1997, Build-A-Bear, a global brand kids love and parents trust, seeks to add a little more heart to life.

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