Build-A-Bear Workshop, Inc. Reports Sixth Consecutive Quarter of Operating Improvement with Second Quarter Fiscal 2014 Results

First six months pre-tax income of $1.3 million, a $7.3 million improvement from a pre-tax loss of $6.0 million in the first six months of fiscal 2013
Company ends the second quarter with $41.8 million in cash and no debt

ST. LOUIS - (BUSINESS WIRE) - July 24, 2014 - Build-A-Bear Workshop, Inc. (NYSE:BBW) today reported results for the 2014 second quarter and twenty-six weeks ended June 28, 2014.

Second Quarter 2014 Highlights (13 weeks ended June 28, 2014):

  • Consolidated net retail sales were $75.4 million while operating 10 fewer stores at quarter’s end compared to $80.4 million in the fiscal 2013 second quarter, a decrease of 7.7%, excluding the impact of foreign exchange;
  • Consolidated comparable store sales decreased 4.9% and included a 4.0% decrease in North America and an 8.1% decrease in Europe;
  • Retail gross margin expanded 220 basis points to 39.0% from 36.8% in the 2013 second quarter;
  • Pre-tax loss was $4.0 million, an improvement from a pre-tax loss of $6.1 million in the 2013 second quarter;
  • Net loss was $4.3 million, or $0.25 per share, an improvement from a net loss of $6.2 million, or$0.38 per share in the fiscal 2013 second quarter; and
  • Adjusted net loss was $4.3 million, or $0.25 per share, an improvement from an adjusted net loss of$5.4 million, or $0.33 per share, in the 2013 second quarter. (See Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss).)

Sharon John, Build-A-Bear Workshop’s Chief Executive Officer commented, “I am pleased that our disciplined approach to the execution of our strategies produced our sixth consecutive quarter of improved operating performance. The second quarter is historically our smallest in terms of revenue, and therefore, it was critical to stay focused on our goal to improve profitability. For the first six months, we have delivered pre-tax income of $1.3 million marking the first time since 2008 that our Company has been profitable at the halfway point of the year.”

Ms. John continued, “While early, we have a positive sales trend in the third quarter and we are well-positioned for the back half of the year with a powerful lineup of hot licenses, proprietary concepts and holiday offerings. I am confident that the disciplined execution of our stated strategies will continue to drive sustainable profitability.”

Additional Second Quarter Highlights (13 weeks ended June 28, 2014):

  • Total revenues were $76.2 million while operating 10 fewer stores at quarter’s end compared to$81.9 million in the 2013 second quarter, a decrease of 8.1%, excluding the impact of foreign exchange;
  • Selling, general and administrative expense (“SG&A”) was $34.0 million, or 44.6% of total revenues. This compares to $36.9 million, or 45.1% of total revenues, including $0.9 million in management transition and store closing expenses in the fiscal 2013 second quarter. Excluding these costs, SG&A was 44.0% of total revenues in the 2013 second quarter.

First Six Months 2014 Highlights (26 weeks ended June 28, 2014):

  • Total revenues were $174.2 million compared to $186.2 million in the first six months of 2013, a decrease of 8.6%, excluding the impact of foreign exchange;
  • Consolidated net retail sales were $172.2 million, compared to $183.3 million in the first six months of fiscal 2013, a decrease of 7.4%, excluding the impact of foreign exchange;
  • Consolidated comparable store sales decreased 3.4% and included a 2.8% decrease in North America and a 5.5% decrease in Europe;
  • Retail gross margin expanded 220 basis points to 41.6% from 39.4% in the first six months of 2013;
  • SG&A was $71.8 million, or 41.2% of total revenues, including $0.4 million in management transition and store closing expenses. This compares to $80.6 million, or 43.3% of total revenues, including$3.2 million in management transition and store closing expenses in the first half of fiscal 2013. Excluding these costs in both periods, SG&A was 41.0% of total revenues in the first six months of 2014, an improvement of 60 basis points from the prior year;
  • Pre-tax income was $1.3 million, an improvement from a pre-tax loss of $6.0 million in the first six months of 2013;
  • Net income was $0.7 million or $0.04 per diluted share, an improvement from a net loss of $6.2 million, or $0.38 per share in the first six months of fiscal 2013; and
  • Adjusted net income was $1.1 million or $0.06 per diluted share, an improvement from an adjusted net loss of $3.1 million, or $0.19 per share in the first six months of fiscal 2013. (See Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss).)

Store Activity

During the quarter, the Company closed four stores and opened one to end the period with 313 company-owned stores, including 254 in North America and 59 in Europe. (See Company-Owned Store Activity Schedule.) The Company’s international franchisees ended the 2014 second quarter with 75 stores in 15 countries.

Balance Sheet

The Company ended the 2014 second quarter with cash and cash equivalents totaling $41.8 million and no borrowings under its revolving credit facility. Total inventory at quarter end was $43.5 million. Inventory per square foot decreased 6.7% as compared to the end of the second quarter of the prior year.
In 2014, the Company continues to expect capital expenditures to be between $12 million and $15 million and depreciation and amortization is expected to be approximately $18 million.

2014 Key Strategic Objectives:

The Company reported progress on its stated strategies:

  • Optimize real estate to improve store productivity. Year-to-date in fiscal 2014, the Company has closed 11 stores transferring 16% of sales to remaining stores, consistent with past closures. The Company continues to expect to close approximately 15 stores in the fiscal year, primarily in North America. The Company will selectively upgrade stores in conjunction with lease renewals while reducing the cost of capital that is needed for the improvements. In addition, the Company expects to open six to eight pop-up stores ahead of the holiday season.
  • Refine the consumer value equation by continuing to reposition its marketing programs. In the quarter, the Company expanded its integrated brand building marketing initiatives as it broadened its annual Huggable Heroes program which recognizes charitably-minded kids by partnering with the USO and their “Every Moment Counts” campaign. The elevated marketing resulted in strong consumer demand for its superhero merchandise collection and delivered over 80 million media impressions.
  • Rationalize expense structure to leverage its SG&A expenses and enhance product margins with end-to-end improvements in its supply chain and ongoing value engineering of product designs. For the first half, retail gross margin increased to 41.6%, a 220 basis point improvement from the prior year and adjusted SG&A as a percent of total revenues was 41.0%, a 60 basis point improvement from the prior year.
  • Build on core competencies and leverage brand equity into new revenue streams. The Company expects to make continual improvements to its high touch retail service model and customizable product offerings. It expects to lay the ground work to further leverage the strength of the Build-A-Bear brand as it begins to develop new product categories to generate incremental profit and revenue streams.

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 12 p.m. ET on July 24, 2014, until 12 a.m. ET on August 7, 2014. The telephone replay is available by calling (858) 384-5517. The access code is 13586042.

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 and Ireland, and franchise stores in Europe, Asia, Australia, Africa, the Middle East, and Mexico. 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 $379.1 million in fiscal 2013. For more information, call 888.560.BEAR (2327) or visit the Investor Relations section of its award-winning 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:

 

  general global economic conditions may continue to deteriorate, which could lead to disproportionately reduced consumer demand for its products, which represent relatively discretionary spending;
 

  customer traffic may decrease in the shopping malls where the Company’s stores are located, and which it depends on to attract guests to its stores;
 

  the Company may be unable to generate interest in and demand for its interactive retail experience, or to identify and respond to consumer preferences in a timely fashion;
 

  the marketing and on-line initiatives may not be effective in generating sufficient levels of brand awareness and guest traffic;
 

  the Company may be unable to generate comparable store sales growth;
 

  the Company is subject to a number of risks related to disruptions, failures or security breaches of its information technology infrastructure and may we improperly obtain, or fail to protect, its data or violate privacy or security laws or expectations;
 

  the Company may be unable to effectively operate or manage the overall portfolio of its company-owned stores;
 

  the Company may be unable to renew or replace its store leases, or enter into leases for new stores on favorable terms or in favorable locations, or may violate the terms of its current leases;
 

  the Company may not be able to operate its company-owned stores in the United Kingdom and Ireland profitably;
 

  the availability and costs of its products could be adversely affected by risks associated with international manufacturing and trade, including foreign currency fluctuation;
 

  its products could become subject to recalls or product liability claims that could adversely impact its financial performance and harm its reputation among consumers;
 

  the Company may lose key personnel, be unable to hire qualified additional personnel, or experience turnover of its management team;
 

  the Company is susceptible to disruption in its inventory flow due to its reliance on a few vendors;
 

  the Company may be unable to effectively manage its international franchises or laws relating to those franchises may change;
 

  the Company may fail to renew, register or otherwise protect its trademarks or other intellectual property or may be sued by third parties for infringement or, misappropriation of their proprietary rights;
 

  the Company is subject to risks associated with technology and digital operations;
 

  the Company may suffer negative publicity or be sued due to violations of labor laws or unethical practices by manufacturers of its merchandise;
 

  the Company may be unable to operate its company-owned distribution center efficiently or its third-party distribution center providers may perform poorly;
 

  high petroleum products prices could increase the Company’s inventory transportation costs and adversely affect its profitability;
 

  the Company’s market share could be adversely affected by a significant, or increased, number of competitors;
 

  the Company may suffer negative publicity or negative sales if the non-proprietary toy products it sells in its stores do not meet its quality or sales expectations;
 

  poor global economic conditions could have a material adverse effect on the Company’s liquidity and capital resources;
 

  fluctuations in the Company’s quarterly results of operations could cause the price of its common stock to substantially decline; and
 

  the Company may be unable to repurchase shares of its common stock at the times or in the amounts it currently anticipates or the results of the share repurchase program may not be as beneficial as it currently anticipates.

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 Operations  
(dollars in thousands, except share and per share data)  
                     
      13 Weeks            13 Weeks         
      Ended       Ended      
      June 28,   % of Total   June 29,   % of Total  
      2014   Revenues(1)   2013   Revenues(1)  
Revenues:                    
Net retail sales     $ 75,351     98.8     $ 80,395     98.2    
Franchise fees       487     0.6       757     0.9    
Commercial revenue       410     0.5       750     0.9    
Total revenues       76,248     100.0       81,902     100.0    
Costs and expenses:                    
Cost of merchandise sold       46,099     60.8       51,169     63.1    
Selling, general and administrative       34,044     44.6       36,901     45.1    
Interest expense (income), net       64     0.1       (55 )   (0.1 )  
Total costs and expenses       80,207     105.2       88,015     107.5    
Loss before income taxes       (3,959 )   (5.2 )     (6,113 )   (7.5 )  
Income tax expense       343     0.4       105     0.1    
Net loss     $ (4,302 )   (5.6 )   $ (6,218 )   (7.6 )  
                     
Loss per common share:                    
Basic     $ (0.25 )       $ (0.38 )      
Diluted     $ (0.25 )       $ (0.38 )      
Shares used in computing common per share amounts:                    
Basic       17,024,598           16,460,474        
Diluted       17,024,598           16,460,474        
  (1)   Selected statement of operations data expressed as a percentage of total revenues, except cost of merchandise sold which is expressed as a percentage of net retail sales and commercial revenue. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales and commercial revenue and immaterial rounding.

 

   
   
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES  
Unaudited Condensed Consolidated Statements of Operations  
(dollars in thousands, except share and per share data)  
                     
      26 Weeks             26 Weeks         
      Ended       Ended      
      June 28,   % of Total   June 29,   % of Total  
      2014   Revenues(1)   2013   Revenues(1)  
Revenues:                    
Net retail sales     $ 172,191   98.9   $ 183,326     98.5    
Franchise fees       1,156   0.7     1,618     0.9    
Commercial revenue       842   0.5     1,223     0.7    
Total revenues       174,189   100.0     186,167     100.0    
Costs and expenses:                    
Cost of merchandise sold       100,997   58.4     111,640     60.5    
Selling, general and administrative       71,844   41.2     80,636     43.3    
Interest expense (income), net       2   0.0     (106 )   (0.1 )  
Total costs and expenses       172,843   99.2     192,170     103.2    
Income (loss) before income taxes       1,346   0.8     (6,003 )   (3.2 )  
Income tax expense       624   0.4     202     0.1    
Net income (loss)     $ 722   0.4   $ (6,205 )   (3.3 )  
                     
Earnings (loss) per common share:                    
Basic     $ 0.04       $ (0.38 )      
Diluted     $ 0.04       $ (0.38 )      
Shares used in computing common per share amounts:                    
Basic       16,863,160         16,345,882        
Diluted       17,097,263         16,345,882        
  (1)   Selected statement of operations data expressed as a percentage of total revenues, except cost of merchandise sold which is expressed as a percentage of net retail sales and commercial revenue. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales and commercial revenue and immaterial rounding.

 

   
   
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES  
Unaudited Condensed Consolidated Balance Sheets  
(dollars in thousands, except share and per share data)  
                 
      June 28,      December 28,      June 29,  
      2014   2013   2013  
ASSETS  
Current assets:                
Cash and cash equivalents     $ 41,762     $ 44,665     $ 28,061    
Inventories       43,463       50,248       48,134    
Receivables       9,307       14,542       6,866    
Prepaid expenses and other current assets       11,469       11,547       13,115    
Deferred tax assets       118       81       382    
Total current assets       106,119       121,083       96,558    
                 
Property and equipment, net       63,185       70,163       68,273    
Other intangible assets, net       397       518       611    
Other assets, net       3,630       3,847       3,227    
Total Assets     $ 173,331     $ 195,611     $ 168,669    
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:                
Accounts payable     $ 25,447     $ 34,977     $ 33,897    
Accrued expenses       11,961       16,380       8,547    
Gift cards and customer deposits       27,547       33,786       24,744    
Deferred revenue       4,243       4,687       4,892    
Deferred tax liability       856       900       -    
Total current liabilities       70,054       90,730       72,080    
                 
Deferred franchise revenue       1,064       905       1,057    
Deferred rent       14,073       19,357       18,099    
Other liabilities       602       229       652    
                 
                 
Stockholders' equity:                
Common stock, par value $0.01 per share       176       174       173    
Additional paid-in capital       70,730       69,094       67,225    
Accumulated other comprehensive loss       (6,515 )     (7,303 )     (8,949 )  
Retained earnings       23,147       22,425       18,332    
Total stockholders' equity       87,538       84,390       76,781    
Total Liabilities and Stockholders' Equity     $ 173,331     $ 195,611     $ 168,669    

 

   
   
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES  
Unaudited Selected Financial and Store Data  
(dollars in thousands, except square foot data)  
                     
      13 Weeks   13 Weeks   26 Weeks   26 Weeks  
      Ended   Ended   Ended   Ended  
      June 28,      June 29,      June 28,      June 29,  
      2014   2013   2014   2013  
                     
Other financial data:                    
Retail gross margin ($) (1)     $ 29,413     $ 29,563     $ 71,553     $ 72,252    
Retail gross margin (%) (1)       39.0 %     36.8 %     41.6 %     39.4 %  
E-commerce sales     $ 2,233     $ 2,289     $ 5,304     $ 5,628    
Capital expenditures, net (2)     $ 2,066     $ 5,209     $ 3,171     $ 9,016    
Depreciation and amortization     $ 4,469     $ 4,761     $ 8,977     $ 9,677    
                     
Store data (3):                    
Number of company-owned stores at end of period                    
North America - Traditional               244       257    
North America - Non-traditional               10       6    
Total North America               254       263    
Europe - Traditional               57       58    
Europe - Non-traditional               2       2    
Total Europe               59       60    
Total stores               313       323    
                     
Number of franchised stores at end of period               75       90    
                     
Company-owned store square footage at end of period                    
North America - Traditional               689,026       728,639    
North America - Non-traditional               19,519       9,759    
Total North America               708,545       738,398    
Europe - Traditional (4)               82,863       84,405    
Europe - Non-traditional (4)               1,926       1,926    
Total Europe               84,789       86,331    
Total square footage               793,334       824,729    
                     
Comparable store sales change (5)                    
North America       (4.0 )%     8.6 %     (2.8 )%     9.7 %  
Europe       (8.1 )%     1.7 %     (5.5 )%     5.9 %  
Consolidated       (4.9 )%     7.3 %     (3.4 )%     9.0 %  
     
(1)   Retail gross margin represents net retail sales less retail cost of merchandise sold. 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 our webstore and seasonal and event-based locations. North American stores are located in the United States, Canada and Puerto Rico. In Europe, stores are located in the United Kingdom and Ireland.
(4)   Square footage for stores located in Europe is estimated selling square footage.
(5)   Comparable store sales percentage changes are based on net retail sales and stores are considered comparable beginning in their thirteenth full month of operation.
     

* Non-GAAP Financial Measures

In this press release, the Company’s financial results are provided both in accordance with generally accepted accounting principles (GAAP) and using certain non-GAAP financial measures. In particular, the Company provides historic earnings (loss) and earnings (loss) per diluted share adjusted to exclude certain costs and accounting adjustments, which are non-GAAP financial measures. These results are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help identify underlying trends in the Company’s business and provide useful information to both management and investors by excluding certain items that may not be indicative of the Company’s core operating results. These measures should not be considered a substitute for or superior to GAAP results.

   
   
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES  
Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)  
(dollars in thousands, except per share data)  
                              
      13 Weeks   13 Weeks   26 Weeks   26 Weeks  
      Ended   Ended   Ended   Ended  
      June 28,   June 29,   June 28,   June 29,  
      2014   2013   2014   2013  
Net income (loss)     $ (4,302 )   $ (6,218 )   $ 722     $ (6,205 )  
                     
Management transition costs(1)       213       506       454       2,251    
Store closing costs (2)       (240 )     340       (65 )     904    
                     
Adjusted net income (loss)     $ (4,329 )   $ (5,372 )   $ 1,111     $ (3,050 )  
                     
                     
      13 Weeks   13 Weeks   26 Weeks   26 Weeks  
      Ended   Ended   Ended   Ended  
      June 28,   June 29,   June 28,   June 29,  
      2014   2013   2014   2013  
Net income (loss) per share     $ (0.25 )   $ (0.38 )   $ 0.04     $ (0.38 )  
                     
Management transition costs(1)       0.01       0.03       0.02       0.14    
Store closing costs (2)       (0.01 )     0.02       (0.00 )     0.05    
                     
Adjusted net income (loss) per share     $ (0.25 )   $ (0.33 )   $ 0.06     $ (0.19 )  
  (1)   Represents transition costs related to changes in executive management. Costs include severance, along with benefits and related taxes, relocation, executive search fees, signing bonus and professional fees.
  (2)   Represents the net impact related to the closing of stores, including asset impairment and disposal charges and severance costs along with adjustments to lease related liabilities.

 

   
   
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES  
Company-Owned Store Activity  
                                   
    2014  
    Twenty-six Weeks   Fifty-three Weeks - Projected  
    December 28,           June 28,   December 28,           January 3,  
    2013   Opened   Closed   2014   2013   Opened   Closed   2015  
North America                                  
Traditional   252  

  (9 )   244   252   5   (13 )   244  
Non-traditional   11   -   (1 )   10   11   6   (1 )   16  
    263  

  (10 )   254   263   11   (14 )   260  
                                   
Europe                                  
Traditional   58   -   (1 )   57   58   -   (1 )   57  
Non-traditional   2   -   -     2   2   1   -     3  
    60   -   (1 )   59   60   1   (1 )   60  
Total   323   1   (11 )   313   323   12   (15 )   320  
                                   
                                   
    2013  
    Twenty-six Weeks   Fifty-two Weeks  
    December 29,           June 29,   December 29,           December 28,  
    2012   Opened   Closed   2013   2012   Opened   Closed   2013  
North America                                  
Traditional   283   -   (26 )   257   283   3   (34 )   252  
Non-traditional   8   -   (2 )   6   8   5   (2 )   11  
    291   -   (28 )   263   291   8   (36 )   263  
                                   
Europe                                  
Traditional   58   -   -     58   58   1   (1 )   58  
Non-traditional   2   -   -     2   2   -   -     2  
    60   -   -     60   60   1   (1 )   60  
Total   351   -   (28 )   323   351   9   (37 )   323  
                                       

SOURCE Build-A-Bear Workshop, Inc.

Contacts:

Tina Klocke
Build-A-Bear Workshop
Investor Relations
314-423-8000 x5210

Tanya Coventry-Strader
Build-A-Bear Workshop
Media Relations
314-423-8000 x5293

###

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Homewatch CareGivers
Homewatch CareGivers gives entrepreneurs a proven path to financial success as well as the opportunity to make a positive change in the world. We are...
Image360
As owner of an Image360 Center offering signage and graphic solutions, you’ll enjoy the work/life balance of a business-to-business enterprise...
Massage Envy
Massage Envy clinics are designed to provide a compelling image, an inviting and functional environment and the highest degree of operational...

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