Build-A-Bear Workshop, Inc. Reports Increased Sales and Earnings for the Third Quarter of Fiscal 2014

  • Consolidated comparable store sales increase 0.8% following a 6.4% increase in the 2013 third quarter
  • Retail gross margin expands 360 basis points to 43.7% from 40.1% in the 2013 third quarter
  • Net income of $1.8 million compares to a net loss of $1.4 million in the 2013 third quarter, an increase of $3.2 million
  • Earnings per diluted share improve to $0.10, or $0.15 excluding $0.05 per diluted share in management transition and store closing expenses

ST. LOUIS - (BUSINESS WIRE) - Oct. 23, 2014 - Build-A-Bear Workshop, Inc. (NYSE: BBW) today reported results for the fiscal third quarter and first thirty-nine weeks ended September 27, 2014.

Third Quarter 2014 Highlights (13 weeks ended September 27, 2014):

  • Consolidated net retail sales were $85.6 million while operating seven fewer stores at quarter end compared to $83.6 million in the fiscal 2013 third quarter, an increase of 1.0%, excluding the impact of foreign exchange;
  • Consolidated comparable store sales increased 0.8%; comparable store sales increased 1.0% in North America and were flat in Europe;
  • Retail gross margin expanded 360 basis points to 43.7% from 40.1% in the fiscal 2013 third quarter;
  • Pre-tax income improved to $2.1 million, including $0.8 million in management transition and store closing expenses, from a pre-tax loss of $1.1 million, including $0.6 million in management transition and store closing expenses in the fiscal 2013 third quarter;
  • Net income was $1.8 million, or $0.10 per diluted share, an improvement from a net loss of $1.4 million, or $0.08 per share in the fiscal 2013 third quarter; and
  • Adjusted net income was $2.6 million, or $0.15 per diluted share, an improvement from adjusted net loss of $0.8 million or $0.05 per share in the fiscal 2013 third quarter. (See Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss).)

Sharon Price John, Build-A-Bear Workshop’s Chief Executive Officer commented, “The third quarter marked our seventh consecutive quarter of improved operating performance and was fueled by positive comparable store sales, expansion in retail gross margin and disciplined expense management. We continued to demonstrate that high impact product launches supported by well executed and elevated marketing programs can drive consumer awareness and product demand. Year-to-date, we have delivered pre-tax income of $3.4 million marking the first time since 2007 that our Company has been profitable through the first three quarters of the year.”

Ms. John continued, “We have a powerful lineup of holiday products that will launch throughout the fourth quarter. While early, the quarter has started with a positive sales trend. I remain confident that we will build on our third quarter momentum and continue to drive sustainable profitability for the year.”

Additional Third Quarter 2014 Highlights:

  • Total revenues were $86.7 million while operating seven fewer stores at quarter end compared to $84.8 million in the fiscal 2013 third quarter, an increase of 0.5%, excluding the impact of foreign exchange;
  • Consolidated comparable e-commerce sales rose 14.5%; and
  • Selling, general and administrative expense (“SG&A”) was $36.2 million, or 41.8% of total revenues, including $0.8 million in management transition and store closing expenses. This compares to $35.8 million, or 42.2% of total revenues, including $0.6 million in management transition and store closing expenses in the fiscal 2013 third quarter.

First Nine Months 2014 Highlights (39 weeks ended September 27, 2014):

  • Total revenues were $260.9 million while operating seven fewer stores at the end of the period compared to $271.0 million in the first nine months of 2013, a decrease of 5.1%, excluding the impact of foreign exchange;
  • Consolidated net retail sales were $257.8 million, compared to $266.9 million in the first nine months of fiscal 2013, a decrease of 4.8%, excluding the impact of foreign exchange;
  • Consolidated comparable store sales decreased 2.0% and included a 1.6% decrease in North America and a 3.6% decrease in Europe;
  • Consolidated comparable e-commerce sales declined 0.9%;
  • Retail gross margin expanded 270 basis points to 42.3% from 39.6% in the first nine months of 2013;
  • SG&A was $108.1 million, or 41.4% of total revenues, including $1.2 million in management transition and store closing expenses. This compares to $116.5 million, or 43.0% of total revenues, including $3.8 million in management transition and store closing expenses in the first nine months of 2013;
  • Pre-tax income was $3.4 million, an improvement from a pre-tax loss of $7.1 million in the first nine months of 2013;
  • Net income was $2.5 million or $0.14 per diluted share, an improvement from a net loss of $7.6 million, or $0.46 per share in the first nine months of fiscal 2013; and
  • Adjusted net income was $3.6 million or $0.21 per diluted share, an improvement from an adjusted net loss of $3.8 million or $0.23 per share in the first nine months of fiscal 2013. (See Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss).)

Store Activity

The Company ended the fiscal 2014 third quarter with 313 company-owned stores; 254 in North America and 59 in Europe. (See Company-Owned Store Activity Schedule.) The Company’s international franchisees ended the quarter with 70 locations in 15 countries.

Balance Sheet

The Company ended the 2014 third quarter with cash and cash equivalents totaling $40.5 million and no borrowings under its revolving credit facility. Total inventory at quarter end was $45.7 million. Inventory per square foot decreased 17.3% as compared to the end of the third quarter of the prior year.

The Company expects capital expenditures to be approximately $12 million to $14 million and depreciation and amortization to be approximately $18 million for fiscal 2014.

During the quarter, the Company repurchased approximately 225,000 shares of its common stock for $2.5 million, leaving $3.9 million of availability under the current stock repurchase program at quarter end.

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 14 stores in North America transferring 16% of sales to remaining stores, consistent with past closures. The Company expects to open six pop-up stores to take advantage of the holiday season including a location in Times Square in New York City.
  • Refine the consumer value equation by continuing to reposition its marketing programs. In the quarter, the Company saw continued success from the introduction of high-impact products supported by elevated marketing programs with the launch of the Teenage Mutant Ninja Turtlecollection. The Company also announced an expansion of its strategic partnership with Macy’s. In addition to the annual appearance of a themed float in the Macy’s Thanksgiving Day Parade®, Build-A-Bear will introduce five seasonal shop-in-shop locations within leading Macy’s retail stores and will be showcased in their Santaland® attractions in two of these locations.
  • Rationalize expense structure and leverage SG&A expenses, while enhancing product margins with end-to-end improvements in its supply chain and ongoing value engineering of product designs. For the first nine months, retail gross margin increased to 42.3%, a 270 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 continue to evolve its organizational structure, acquire key talent and upgrade its information technology infrastructure in order to further leverage the strength of the Build-A-Bear brand as it develops new business 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 noon ET today until midnight ET on October 30, 2014. The telephone replay is available by calling (877) 870-5176. The access code is 13592700.

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 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 28, 2013, as filed with the SEC, and the following:

  • general global economic conditions may deteriorate, which could lead to disproportionately reduced consumer demand for our products, which represent relatively discretionary spending;
  • customer traffic may decrease in the shopping malls where we are located, on which we depend to attract guests to our stores;
  • we may be unable to generate interest in and demand for our interactive retail experience, or to identify and respond to consumer preferences in a timely fashion;
  • our marketing and on-line initiatives may not be effective in generating sufficient levels of brand awareness and guest traffic;
  • we may be unable to generate comparable store sales growth;
  • we may be unable to effectively operate or manage the overall portfolio of our company-owned stores;
  • we may not be able to operate our company-owned stores in the United Kingdom and Ireland profitably;
  • we may be unable to renew or replace our store leases, or enter into leases for new stores on favorable terms or in favorable locations, or may violate the terms of our current leases;
  • the availability and costs of our products could be adversely affected by risks associated with international manufacturing and trade, including foreign currency fluctuation;
  • our products could become subject to recalls or product liability claims that could adversely impact our financial performance and harm our reputation among consumers;
  • we may lose key personnel, be unable to hire qualified additional personnel, or experience turnover of our management team;
  • we are susceptible to disruption in our inventory flow due to our reliance on a few vendors;
  • high petroleum products prices could increase our inventory transportation costs and adversely affect our profitability;
  • we may be unable to effectively manage our international franchises or laws relating to those franchises may change;
  • >we may improperly obtain or be unable to adequately protect customer information in violation of privacy or security laws or customer expectations;
  • we may suffer negative publicity or be sued due to violations of labor laws or unethical practices by manufacturers of our merchandise;
  • we may suffer negative publicity or negative sales if the non-proprietary toy products we sell in our stores do not meet our quality or sales expectations;
  • we may be unable to operate our company-owned distribution center efficiently or our third-party distribution center providers may perform poorly;
  • our market share could be adversely affected by a significant, or increased, number of competitors;
  • we may fail to renew, register or otherwise protect our trademarks or other intellectual property;
  • poor global economic conditions could have a material adverse effect on our liquidity and capital resources;
  • we may have disputes with, or be sued by, third parties for infringement or misappropriation of their proprietary rights;
  • fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline; and
  • we may be unable to repurchase shares of our common stock at the times or in the amounts we currently anticipate or the results of the share repurchase program may not be as beneficial as we currently anticipate.

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    
        September 27,   % of Total          September 28,   % of Total
        2014  

Revenues (1)

      2013   Revenues (1)
Revenues:                        
Net retail sales     $ 85,561     98.7     $ 83,580     98.5
Franchise fees       558     0.6       781     0.9
Commercial revenue       542     0.6       451     0.5
Total revenues       86,661     100.0       84,812     100.0
Costs and expenses:                        
Cost of merchandise sold       48,424     56.2       50,197     59.7
Selling, general and administrative       36,217     41.8       35,819     42.2
Interest expense (income), net       (38 )   (0.0)       (60 )   (0.0)
Total costs and expenses       84,603     97.6       85,956     101.3
Income (loss) before income taxes       2,058     2.4       (1,144 )   (1.3)
Income tax expense       238     0.3       210     0.2
Net income (loss)     $ 1,820     2.1     $ (1,354 )   (1.6)
                         
Earnings (loss) per common share:                        
Basic     $ 0.10           $ (0.08 )    
Diluted     $ 0.10           $ (0.08 )    
Shares used in computing common per share amounts:                
Basic       16,971,416             16,531,240      
Diluted       17,132,206             16,531,240      

 

       
  (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)
                         
        39 Weeks           39 Weeks    
        Ended           Ended    
        September 27,   % of Total          September 28,   % of Total
        2014   Revenues (1)       2013   Revenues (1)
Revenues:                        
Net retail sales     $ 257,752     98.8     $ 266,906     98.5
Franchise fees       1,716     0.7       2,399     0.9
Commercial revenue       1,384     0.5       1,674     0.6
Total revenues       260,852     100.0       270,979     100.0
Costs and expenses:                        
Cost of merchandise sold       149,422     57.7       161,837     60.3
Selling, general and administrative       108,062     41.4       116,455     43.0
Interest expense (income), net       (36 )   (0.0)       (166 )   (0.1)
Total costs and expenses       257,448     98.7       278,126     102.6
Income (loss) before income taxes       3,404     1.3       (7,147 )   (2.6)
Income tax expense       862     0.3       412     0.2
Net income (loss)     $ 2,542     1.0     $ (7,559 )   (2.8)
                         
Earnings (loss) per common share:                        
Basic     $ 0.15           $ (0.46 )    
Diluted     $ 0.14           $ (0.46 )    
Shares used in computing common per share amounts:                    
Basic       16,899,245             16,407,668      
Diluted       17,108,910             16,407,668      

 

       
  (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 per share data)  
                       
        September 29,     December 28,     September 28,  
        2014     2013     2013  
  ASSETS                    
  Current assets:                          
  Cash and cash equivalents     $ 40,451       $ 44,665       $ 13,802    
  Inventories       45,712         50,248         56,671    
  Receivables       10,144         14,542         10,515    
  Prepaid expenses and other current assets       12,188         11,547         14,602    
  Deferred tax assets       998         81         269    
  Total current assets       109,493         121,083         95,859    
                       
  Property and equipment, net       61,031         70,163         69,562    
  Other intangible assets, net       365         518         571    
  Other assets, net       3,976         3,847         3,025    
  Total Assets     $ 174,865       $ 195,611       $ 169,017    
                       
  LIABILITIES AND STOCKHOLDERS' EQUITY                    
  Current liabilities:                    
  Accounts payable     $ 28,369       $ 34,977       $ 33,517    
  Accrued expenses       13,145         16,380         9,162    
  Gift cards and customer deposits       25,869         33,786         23,092    
  Deferred revenue       4,173         4,687         4,935    
  Deferred tax liability       856         900         -    
  Total current liabilities       72,412         90,730         70,706    
                       
  Deferred franchise revenue       1,004         905         1,000    
  Deferred rent       13,716         19,357         19,050    
  Other liabilities       1,367         229         492    
                       
                       
  Stockholders' equity:                    
  Common stock, par value $0.01 per share       174         174         174    
  Additional paid-in capital       68,749         69,094         68,460    
  Accumulated other comprehensive loss       (7,524 )       (7,303 )       (7,843 )  
  Retained earnings       24,967         22,425         16,978    
  Total stockholders' equity       86,366         84,390         77,769    
  Total Liabilities and Stockholders' Equity     $ 174,865       $ 195,611       $ 169,017    

 

 
 
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Selected Financial and Store Data
(dollars in thousands)
                           
        13 Weeks        13 Weeks     39 Weeks     39 Weeks
        Ended     Ended        Ended        Ended
        September 27,     September 28,     September 27,     September 28,
        2014     2013     2014     2013
                           
Other financial data:                          
Retail gross margin ($) (1)     $ 37,415     $ 33,545     $ 108,967     $ 105,797  
Retail gross margin (%) (1)       43.7 %     40.1 %     42.3 %     39.6 %
E-commerce sales     $ 2,648     $ 2,269     $ 7,952     $ 7,897  
Capital expenditures, net (2)     $ 2,511     $ 5,677     $ 5,681     $ 14,693  
Depreciation and amortization     $ 4,422     $ 4,722     $ 13,385     $ 14,399  
                           
Store data (3):                          
Number of company-owned stores at end of period                        
North America - Traditional                   241       254  
North America - Non-traditional                   13       6  
Total North America                   254       260  
Europe - Traditional                   57       58  
Europe - Non-traditional                   2       2  
Total Europe                   59       60  
Total stores                   313       320  
                           
Number of franchised stores at end of period                   70       85  
                           
Company-owned store square footage at end of period                        
North America - Traditional                   680,691       721,528  
North America - Non-traditional                   26,986       9,759  
Total North America                   707,677       731,287  
Europe - Traditional (4)                   82,863       84,405  
Europe - Non-traditional (4)                   1,926       1,926  
Total Europe                   84,789       86,331  
Total square footage                   792,466       817,618  
                           
Comparable store sales change (%) (5)                          
North America       1.0 %     7.6 %     (1.6 )%     9.1 %
Europe       0.0 %     2.3 %     (3.6 )%     4.6 %
Consolidated       0.8 %     6.4 %     (2.0 )%     8.2 %

 

     
(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 share and per share data)  
                     
      13 Weeks   13 Weeks   39 Weeks   39 Weeks  
      Ended   Ended   Ended   Ended  
      September 27,   September 28,   September 27,   September 28,  
      2014   2013   2014   2013  
Net income (loss)     $ 1,820   $ (1,354 )   $ 2,542     $ (7,559 )  
                     
Management transition costs(1)       688     397       1,089       2,673    
Store closing costs (2)       60     166       (3 )     1,080    
                     
Adjusted net income (loss)     $ 2,568   $ (791 )   $ 3,628     $ (3,806 )  
                     
                     
      13 Weeks   13 Weeks   39 Weeks   39 Weeks  
      Ended   Ended   Ended   Ended  
      September 27,   September 28,   September 27,   September 28,  
      2014   2013   2014   2013  
Net income (loss) per diluted share     $ 0.10   $ (0.08 )   $ 0.14     $ (0.46 )  
                     
Management transition costs(1)       0.05     0.02       0.07       0.16    
Store closing costs (2)       0.00     0.01       (0.00 )     0.07    
            -            
Adjusted net income (loss) per diluted share     $ 0.15   $ (0.05 )   $ 0.21     $ (0.23 )  

 

       
  (1)   Represents transition costs related to changes in executive management. Costs include severance, along with benefits and related taxes, 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

                                       
      Thirty-nine Weeks     Fifty-three Weeks - Projected  
      December 28,           September 27,     December 28,           January 3,  
      2013   Opened   Closed   2014     2013   Opened   Closed   2015  
North America                                      
Traditional     252   2   (13)   241     252   5   (13)   244  
Non-traditional     11   3   (1)   13     11   11   (1)   21  
      263   5   (14)   254     263   16   (14)   265  
                                       
Europe                                      
Traditional     58   -   (1)   57     58   -   (1)   57  
Non-traditional     2   -   -   2     2   -   -   2  
      60   -   (1)   59     60   -   (1)   59  
Total     323   5   (15)   313     323   16   (15)   324  
                                       
      2013  
                                       
      Thirty-nine Weeks     Fifty-two Weeks  
      December 29,           June 29,     December 29,           December 28,  
      2012   Opened   Closed   2013     2012   Opened   Closed   2013  
North America                                      
Traditional     283   3   (32)   254     283   3   (34)   252  
Non-traditional     8   -   (2)   6     8   5   (2)   11  
      291   3   (34)   260     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   3   (34)   320     351   9   (37)   323  

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

###

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