Build-A-Bear Workshop, Inc. Reports a 2.1% Consolidated Comparable Store Sales Increase with Third Quarter Fiscal 2015 Results

29 Oct 2015, 06:00 AM CDT

Third quarter consolidated comparable store sales increase 2.1%
Retail gross margin expands 160 basis points to 45.3% from 43.7%
in the 2014 third quarter
First nine months pre-tax income rises by $4.6 million to $8.0
million

ST. LOUIS–(BUSINESS WIRE)–Build-A-Bear Workshop, Inc. (NYSE:BBW) today reported results for the
2015 third quarter and thirty-nine weeks ended October 3, 2015.

Third Quarter Fiscal 2015 Highlights (13 weeks ended October 3, 2015,
compared to the 13 weeks ended September 27, 2014):

Consolidated comparable store sales increased 2.1% and included a 0.2%
increase in North America and an 8.9% increase in Europe. Third
quarter 2015 comparable store sales are compared to the thirteen-week
period ended October 4, 2014;
Retail gross margin expanded 160 basis points to 45.3% from 43.7% in
the 2014 third quarter;
Pre-tax income was $1.4 million, a $690,000 decline from the 2014
third quarter;
Net income was $1.1 million, or $0.06 per diluted share compared to
net income of $1.8 million, or $0.10 per diluted share in the 2014
third quarter; and
Adjusted net income was $1.7 million or $0.10 per diluted share
compared to adjusted net income of $3.4 million, or $0.19 per diluted
share, in the 2014 third quarter. (See Reconciliation of Net Income to
Adjusted Net Income.)

Sharon Price John, Build-A-Bear Workshop’s Chief Executive Officer
commented: “In the quarter, we had comparable store sales increases
across geographies marking our fifth consecutive quarter of consolidated
comparable store sales growth. For the first nine months of 2015, we
have delivered $8.0 million in pre-tax profit, the highest level since
2007. This puts us in a solid position as we enter the fourth quarter,
which is typically our largest and most profitable period of the year.

“We believe we have a balanced product portfolio planned for the fourth
quarter designed to reach all of our key consumer segments.
Additionally, we remain focused on executing our long range strategies,
which we believe will deliver sustained profitable growth and increased
value for our shareholders,” concluded Ms. John.

Additional Third Quarter Fiscal 2015 Highlights (13 weeks ended
October 3, 2015, compared to the 13 weeks ended September 27, 2014):

Total revenues were $85.6 million compared to $86.7 million in the
2014 third quarter;
Consolidated net retail sales were $84.3 million compared to $85.6
million in the 2014 third quarter, as increased comparable store sales
and sales from new stores were offset by the negative impact of
foreign exchange, the one-week calendar shift due to the 53^rd
week in fiscal 2014, temporary store closures due to remodels and
permanent store closures. Excluding the impact of foreign exchange,
consolidated net retail sales rose 0.8% versus the third quarter last
year;
Consolidated e-commerce sales rose 4.1% excluding the impact of
foreign exchange; and
Selling, general and administrative expense (“SG&A”) totaled $37.6
million, or 44.0% of total revenues, an increase of $1.4 million
compared to the 2014 third quarter. The majority of the increase in
SG&A reflects investments in marketing, personnel and store activity
to advance the Company’s long term strategy.

First Nine Months Fiscal 2015 Highlights (39 weeks ended October 3,
2015, compared to the 39 weeks ended September 27, 2014):

Total revenues were $260.0 million compared to $260.9 million in the
first nine months of 2014;
Consolidated net retail sales were $256.2 million, compared to $257.8
million in the first nine months of 2014, as improved comparable
stores sales were offset by the one-week calendar shift due to the 53^rd
week in fiscal 2014 and the negative impact of foreign exchange.
Excluding the impact of foreign exchange, net retail sales increased
1.5% compared to the first nine months of 2014;
Consolidated comparable store sales increased 4.0% and included a 1.9%
increase in North America and a 13.1% increase in Europe. Comparable
store sales for the first nine months of 2015 are compared to the
thirty-nine week period ended October 4, 2014;
Consolidated e-commerce sales rose 7.9%, excluding the impact of
foreign exchange;
Retail gross margin expanded 300 basis points to 45.3% from 42.3% in
the first nine months of 2014;
SG&A was $110.8 million, or 42.6% of total revenues, an increase of
$2.8 million compared to the first nine months of 2014;
Pre-tax income was $8.0 million, an improvement of $4.6 million
compared to the first nine months of 2014;
Net income was $7.3 million or $0.42 per diluted share, an improvement
of $4.7 million compared to the first nine months of 2014; and
Adjusted net income was $8.9 million or $0.51 per diluted share, an
improvement from $4.4 million, or $0.25 per diluted share in the first
nine months of 2014. (See Reconciliation of Net Income to Adjusted Net
Income.)

Store Activity

The Company ended the period with 317 company-owned stores, including
257 in North America and 60 in Europe. This reflects four store closures
and six store openings in the quarter, including five true outlet
concept locations and one new format specialty store. The Company also
remodeled six stores in its new specialty retail format. The Company’s
international franchisees ended the 2015 third quarter with 67 stores in
11 countries.

Balance Sheet

The Company ended the 2015 third quarter with cash and cash equivalents
totaling $37.1 million and no borrowings under its revolving credit
facility. Total inventory at quarter end was $55.6 million, compared to
$45.7 million in the fiscal 2014 third quarter. This $9.9 million
increase was driven by a stronger inventory position on key product
stories and the timing of purchases to support fourth quarter product
launches, as well as additional store openings during the Holiday
season. This follows an $11.0 million decrease at the end of last year’s
third quarter with inventory declining 1.9% on a two-year basis.

In 2015, the Company continues to expect capital expenditures to be
between $20 million and $25 million to support the remodeling and
opening of stores, as well as investment in infrastructure. Depreciation
and amortization is expected to be between $16 million and $17 million.

Share Repurchase Activity

During the third quarter the Company repurchased approximately 106,000
shares of its common stock for an aggregate amount of $1.9 million,
leaving approximately $8.9 million available under the current share
repurchase program.

2015 Key Strategic Objectives

To increase shareholder value, the Company expects to continue to
execute its “MORE x 4” strategic plan which includes continuous
improvement and strategic expansion initiatives in four areas with the
progress outlined below:

Expanding into More Places

The Company intends to continue to evolve its real estate portfolio to
align with market trends while selectively opening new locations and
systematically remodeling its store base. To this end, in the third
quarter, the Company opened one new store and remodeled six stores in
its new design, which was developed to increase productivity and update
the brand look. The Company also advanced its strategy to add
non-traditional stores with the opening of five true outlet stores, as
well as the expansion of its ongoing partnership with Macy’s in which it
expects to open seven shop-in-shops for the holiday season.

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 the third
quarter, a Build-A-Bear Workshop location was opened on Li & Fung’s
Shanghai campus in the Explorium, a retail laboratory and exhibition
operated by the Fung Group, a Hong Kong-based multinational with
international brands and retail operations across China.

Targeting More People

The Company intends to have continuous growth in its business with the
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. In the quarter, the Company
successfully reached its older girl segment with the launch of its new
proprietary Honey Girls collection, expanded its offering to boys with
the initial launch of Star Wars product, and continued to sell Minions,
which appealed across all consumer segments.

The Company expects to 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 more than 20%
of sales and has a tendency to over-index on less price-sensitive
“gift-able” and online purchases. Therefore, the Company intends to
leverage its e-commerce business to efficiently target these consumers.
In the quarter, the Company introduced Build-A-Bear Workshop’s Sports
Central concept on line and in stores to leverage its powerful licensing
relationships which span most major sports leagues and include many
major universities.

Developing More Products

The Company intends to make continuous improvements to its products by
developing high impact stories coupled with integrated marketing
programs that tend to garner higher price points, drive add-on purchases
and create “play beyond the plush.” In conjunction with the successful
launch of its proprietary Honey Girls collection, the Company introduced
music videos. Since the collection’s introduction, there have been more
than 2.5 million views of both Build-A-Bear and user generated videos
about the Honey Girls on YouTube.

The Company also plans to continue to expand its presence and create new
revenue and profit streams by launching wholesale and out-bound
licensing programs to leverage its strong brand equity. These programs
will enable the Company to extend its brand reach with new offerings in
relevant categories and will provide consumers with “products beyond the
plush.” To this end, the Company announced that Costco Wholesale
Corporation is offering Build-A-Bear branded, pre-packaged gift sets
during the holiday season. In addition, the Company announced an
agreement with Spin Master, Inc. to distribute a complementary toy line
that is expected to launch in the fall of 2016.

Driving More Profitability

The Company intends to make continuing improvements in its value
engineering initiatives to further enhance product margins while
implementing new systems that should facilitate sales growth, increase
efficiency and improve long term profitability. In the quarter, the
Company expanded retail gross margin by 160 basis points to 45.3%. The
Company also delivered pre-tax income of $8.0 million for the first nine
months of fiscal 2015, an increase of $4.6 million over the prior year.

The Company expects to continue to expand its profitability by
prioritizing incremental growth initiatives, like those discussed above,
that leverage existing infrastructure, are primarily royalty-based,
and/or allow for discrete 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. 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 October 29, 2015,
until 12 a.m. ET on November 5, 2015. The telephone replay is available
by calling 877-870-5176. The access code is 13622377.

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, and Mexico. The Company was named to the FORTUNE 100 Best
Companies to Work For list for the seventh year in a row in 2015.
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 January 3, 2015, 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 improperly obtain or be unable to adequately protect customer
information in violation of privacy or security laws or customer
expectations;
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 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;
we may not be able to operate our international company-owned
profitably;
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;
we may be unable to effectively manage our international franchises or
laws relating to those franchises may change;
we may fail to renew, register or otherwise protect our trademarks or
other intellectual property;
we are subject to risks associated with technology and digital
operations;
we may suffer negative publicity or be sued due to violations of labor
laws or unethical practices by manufacturers of our merchandise;
we may be unable to operate our company-owned distribution center
efficiently or our third-party distribution center providers may
perform poorly;
high petroleum products prices could increase our inventory
transportation costs and adversely affect our profitability;
our plans to leverage the Build-A-Bear brand to drive strategic
expansion may not be successful;
our market share could be adversely affected by a significant, or
increased, number of competitors;
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;
poor global economic conditions could have a material adverse effect
on our liquidity and capital resources;
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.

(Financial Tables Follow)

BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Income Statements
(dollars in thousands, except share and per share data)

				13 Weeks					13 Weeks
				Ended					Ended
				October 3,		% of Total			September 27,		% of Total
				2015		Revenues ⁽¹⁾			2014		Revenues⁽¹⁾
Revenues:
	Net retail sales		$	84,303		98.5		$	85,561		98.7
	Franchise fees			525		0.6			558		0.6
	Commercial revenue			795		0.9			542		0.6
		Total revenues		85,623		100.0			86,661		100.0
Costs and expenses:
	Cost of merchandise sold – retail ⁽¹⁾			46,117		54.7			48,146		56.3
	Cost of merchandise sold – commercial ⁽¹⁾			551		69.3			278		51.3
	Selling, general and administrative			37,643		44.0			36,217		41.8
	Interest expense (income), net			(56	)	(0.1	)		(38	)	(0.0	)
		Total costs and expenses		84,255		98.4			84,603		97.6
		Income before income taxes		1,368		1.6			2,058		2.4
Income tax expense				301		0.4			238		0.3
		Net income	$	1,067		1.2		$	1,820		2.1

Income per common share:
	Basic		$	0.06				$	0.10
	Diluted		$	0.06				$	0.10
Shares used in computing common per share amounts:
	Basic			16,670,358					16,971,416
	Diluted			16,890,722					17,132,206

(1)

Selected statement of operations data expressed as a percentage of
total revenues, except cost of merchandise sold – retail and cost of
merchandise sold – commercial that are expressed as a percentage of
net retail sales and commercial revenue, respectively. 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
				October 3,		% of Total			September 27,		% of Total
				2015		Revenues ⁽¹⁾			2014		Revenues⁽¹⁾
Revenues:
	Net retail sales		$	256,246		98.5		$	257,752		98.8
	Franchise fees			1,624		0.6			1,716		0.7
	Commercial revenue			2,159		0.8			1,384		0.5
		Total revenues		260,029		100.0			260,852		100.0
Costs and expenses:
	Cost of merchandise sold – retail ⁽¹⁾			140,288		54.7			148,785		57.7
	Cost of merchandise sold – commercial ⁽¹⁾			1,093		50.6			637		46.0
	Selling, general and administrative			110,815		42.6			108,062		41.4
	Interest expense (income), net			(148	)	(0.1	)		(36	)	(0.0	)
		Total costs and expenses		252,048		96.9			257,448		98.7
		Income before income taxes		7,981		3.1			3,404		1.3
Income tax expense				721		0.3			862		0.3
		Net income	$	7,260		2.8		$	2,542		1.0

Income per common share:
	Basic		$	0.42				$	0.15
	Diluted		$	0.42				$	0.14
Shares used in computing common per share amounts:
	Basic			16,834,968					16,899,245
	Diluted			17,071,591					17,108,910

(1)

BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)

			October 3,			January 3,			September 27,
			2015			2015			2014
ASSETS
Current assets:
	Cash and cash equivalents		$	37,146		$	65,389		$	40,451
	Inventories			55,591			51,939			45,712
	Receivables			8,053			11,461			10,144
	Prepaid expenses and other current assets			16,651			15,611			12,188
	Deferred tax assets			1,669			1,378			998
		Total current assets		119,110			145,778			109,493

Property and equipment, net				60,090			62,766			61,031
Other intangible assets, net				1,211			304			365
Other assets, net				2,893			3,206			3,976
Total Assets			$	183,304		$	212,054		$	174,865

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	29,927		$	38,107		$	28,369
	Accrued expenses			14,197			24,058			13,145
	Gift cards and customer deposits			28,048			34,268			25,869
	Deferred revenue			2,635			2,654			4,173
	Deferred tax liability			–			–			856
		Total current liabilities		74,807			99,087			72,412

Deferred franchise revenue				782			945			1,004
Deferred rent				12,327			13,353			13,716
Other liabilities				1,111			1,044			1,367

Stockholders’ equity:
	Common stock, par value $0.01 per share			169			174			174
	Additional paid-in capital			59,333			69,362			68,749
	Accumulated other comprehensive loss			(9,272	)		(8,698	)		(7,524	)
	Retained earnings			44,047			36,787			24,967
		Total stockholders’ equity		94,277			97,625			86,366
Total Liabilities and Stockholders’ Equity			$	183,304		$	212,054		$	174,865

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
				October 3,			September 27,			October 3,			September 27,
				2015			2014			2015			2014

Other financial data:
	Retail gross margin ($) ⁽¹⁾		$	38,186		$	37,415		$	115,958		$	108,967
	Retail gross margin (%) ⁽¹⁾			45.3	%		43.7	%		45.3	%		42.3	%
	E-commerce sales		$	2,801		$	2,648		$	8,461		$	7,952
	Capital expenditures, net⁽²⁾		$	6,785		$	2,511		$	12,864		$	5,681
	Depreciation and amortization		$	4,029		$	4,422		$	12,262		$	13,385

Store data⁽³⁾:
	Number of company-owned retail locations at end of period
		North America								257			254
		Europe								60			59
		Total company-owned retail locations								317			313

	Number of franchised stores at end of period									67			70

	Company-owned store square footage at end of period⁽⁴⁾
		North America								700,685			707,677
		Europe								85,925			84,789
		Total square footage								786,610			792,466

	Comparable store sales change (%)⁽⁵⁾
		North America		0.2	%		1.0	%		1.9	%		(1.6	)%
		Europe		8.9	%		0.0	%		13.1	%		(3.6	)%
		Consolidated		2.1	%		0.8	%		4.0	%		(2.0	)%

(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 webstores. North American stores are located in the United States, Canada and Puerto Rico. In Europe, stores are located in the United Kingdom and Ireland and, beginning in 2015, Denmark.
(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.
(5)		Comparable store sales percentage changes are based on net retail sales and exclude the impact of foreign exchange. Stores are considered comparable beginning in their thirteenth full month of operation. Comparable store sales percentage changes for 2015 are based on net retail sales as compared to the thirteen and thirty-nine-week periods ended October 4, 2014.

* 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 income and income 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.