Build-A-Bear Workshop, Inc. Reports 2.2% Consolidated Comparable Sales Increase in 2016 First Quarter, Reiterates Annual Guidance and Announces Exploration of Strategic Alternatives

  • Consolidated comparable sales increase 2.2%
  • New Discovery store format sales increase 14.0%
  • Retail gross margin expands 160 basis points to 48.4%
  • Pre-tax income of $5.3 million, includes $1.9 million in planned
    new business initiative costs related to Discovery store rollout and
    international expansion
  • Reiterates expectation for a 15% to 25% increase in GAAP pre-tax
    income in fiscal 2016
  • Board of Directors authorizes an exploration of a full range of
    strategic alternatives to potentially accelerate key growth
    initiatives while enhancing total shareholder value

ST. LOUIS–(BUSINESS WIRE)–Build-A-Bear Workshop, Inc. (NYSE:BBW) today reported results for the
first quarter ended April 2, 2016. The first quarter included increased
net revenues, positive consolidated comparable sales and expansion in
gross margin. As planned, first quarter net income was negatively
impacted by the expenses related to the rollout of the Company’s new
Discovery format stores and costs related to international expansion,
including China. In addition, the Company’s tax rate rose to 33.3% from
3.3% in the 2015 first quarter, due to the release of the tax valuation
allowance in 2015.

Fiscal First Quarter 2016 Highlights (13 weeks ended April 2, 2016)

  • Consolidated comparable sales (stores and e-commerce) increased 2.2%
    following a 2.2% increase in the fiscal 2015 first quarter. The fiscal
    2016 first quarter included a 3.0% increase in North America,
    following a flat performance in the fiscal 2015 first quarter and a
    1.8% decrease in Europe, following an increase of 14.0% in the fiscal
    2015 first quarter;
  • Sales from Discovery format stores (15 stores as of quarter end)
    increased 14.0% and included a 14.1% increase in North America and a
    13.4% increase in Europe;
  • Retail gross margin expanded 160 basis points to 48.4% compared to
    46.8% in the fiscal 2015 first quarter;
  • Pre-tax income was $5.3 million, which included $1.9 million in
    business expansion costs, compared to pre-tax income of $7.1 million
    in the fiscal 2015 first quarter;
  • Tax expense increased to $1.8 million with a tax rate of 33.3%
    compared to a tax expense of $0.2 million with a tax rate of 3.3% in
    the fiscal 2015 first quarter. The change in the Company’s tax rate as
    compared to the prior year’s first quarter was driven by the release
    of its tax valuation allowance in fiscal 2015; and
  • Net income was $3.5 million, or $0.22 per diluted share, compared to
    net income of $6.8 million, or $0.40 per diluted share, in the fiscal
    2015 first quarter.

Sharon Price John, Build-A-Bear Workshop President and Chief Executive
Officer commented, “In the quarter, we delivered higher revenue,
positive consolidated comparable sales and expansion in gross margin.
The 15 stores in our Discovery format achieved an average sales increase
of 14% and continue to outpace our heritage stores on all key metrics.
These consistently strong results support our planned investments in the
ongoing rollout of the Discovery format stores with both remodels and
new locations, including our expansion into China with a flagship store
at the Shanghai Disney Resort that is scheduled to open in June.

“As expected, the expenses associated with these initiatives had a
negative impact on our profitability in the quarter. However, we have
strategically elected to make these key investments during the first
half of the year to maximize the number of Discovery locations open
during our historically strongest season, the fourth quarter,” continued
Ms. John. “Our confidence in this strategy is reflected in the
reiteration of our annual guidance, which includes an expectation of a
15% to 25% increase in pre-tax income in fiscal 2016 while delivering
our fourth consecutive year of increased consolidated comparable sales
and improved profitability.”

Additional Fiscal First Quarter 2016 Details (13 weeks ended April 2,
2016)

  • Total revenues were $95.0 million compared to $93.4 million in the
    fiscal 2015 first quarter;
  • Consolidated net retail sales were $94.1 million compared to $91.7
    million in the fiscal 2015 first quarter. The increase in net retail
    sales is primarily attributable to higher consolidated comparable
    sales, new store sales and the recognition of gift card breakage as
    revenue partially offset by the impact of currency and closed stores;
  • Comparable e-commerce sales increased 1.0%, following an 8.8% increase
    in the fiscal 2015 first quarter;
  • Selling, general and administrative expenses (“SG&A”) were $39.7
    million, or 41.8% of total revenues compared to $37.2 million, or
    39.9% of total revenues in the fiscal 2015 first quarter. This
    expected increase in SG&A versus the prior year’s first quarter is
    primarily due to a shift in the timing of marketing expenses,
    increased compensation expense, and investments in new business
    initiatives and international expansion to support the execution of
    the Company’s stated strategies; and
  • Business expansion expenses were $1.9 million including store
    preopening expenses of $1.2 million associated with the first and
    second quarter openings of the Company’s new and remodeled Discovery
    format stores. The Company opened four of these locations in the
    fiscal 2016 first quarter and expects to open a minimum of 30
    additional new or remodeled Discovery stores in the remainder of the
    year, with the majority of these occurring in the second quarter.

Store Activity

During the first quarter, the Company had nine stores closures and one
new store opening. As of April 2, 2016, the Company operated 321
Company-owned stores, including 15 in its new Discovery format, with 264
locations in North America and 57 in Europe. The Company’s international
franchisees ended the period with 76 stores in 11 countries.

Balance Sheet

The Company ended the fiscal 2016 first quarter with cash and cash
equivalents totaling $30.8 million and no borrowings under its revolving
credit facility. Total inventory at quarter-end was $54.0 million
compared to $51.2 million in the prior year, an increase of 5.5%. In the
fiscal 2016 first quarter, capital expenditures were $6.2 million, and
depreciation and amortization was $3.8 million.

Share Repurchase Activity

During the fiscal 2016 first quarter, the Company repurchased
approximately 133,000 shares of its common stock for an aggregate amount
of $1.5 million.

Review of Strategic Alternatives

The Company’s Board of Directors authorized an exploration of a full
range of strategic alternatives. The Company retained Guggenheim
Securities, LLC as its financial advisor and Bryan Cave LLP as its legal
counsel to assist with the strategic review.

Commenting on the strategic review, Sharon Price John stated, “The
disciplined execution of our strategy has led to three consecutive years
of positive consolidated comparable sales and profit growth fueled by
margin expansion and improved operational metrics, such as the highest
average transaction value in our history while consistently generating
strong cash flow. The authorization to explore strategic alternatives by
our Board will enable us to evaluate the various opportunities to
potentially accelerate our key growth initiatives while enhancing total
shareholder value.”

No timetable has been set for the Company’s review process. The Company
does not expect to comment further or update the market with any
additional information on the process unless and until its Board of
Directors deems disclosure appropriate or necessary. There is no
assurance that this exploration will result in any strategic
alternatives being announced or executed.

Fiscal 2016 Outlook

For fiscal 2016, the Company continues to expect:

  • Total revenue to increase in the low to mid-single digit range
    compared to the prior year;
  • Consolidated comparable sales to increase in the low-single digit
    range;
  • GAAP pre-tax income to grow 15% to 25% compared to the prior year;
  • A tax rate of approximately 30%;
  • Capital expenditures in the range of $25 million to $30 million and
    depreciation and amortization in the range of $17 million to $19
    million; and
  • To end the year with 340 to 345 stores, 45 to 55 of which are expected
    to be in its new Discovery format.

2016 Key Strategic Initiatives

To increase shareholder value, the Company expects to continue to
execute its “MORE” strategic plan which is designed to leverage the
power of the Build-A-Bear brand by extending into more places
with more products to reach more people to deliver more
long-term profitability with key initiatives in four areas outlined
below:

Expanding into More Places

The Company plans to expand its owned and operated locations in 2016 by
adding 10 to 15 stores, net of closures. Through a combination of
remodels and new openings, the Company expects to end the year with
between 45 and 55 stores in its Discovery format. During the first
quarter, the Company completed remodels of flagship locations at
Broadway at the Beach in Myrtle Beach, South Carolina; Trafford Centre
in Manchester, England; and Tivoli Gardens in Copenhagen, Denmark. The
Company is also on schedule to open a Discovery format location in the
new Disneytown at the Shanghai Disney Resort in China in June 2016. The
Company also plans to continue to diversify its real estate portfolio
with the addition of outlet format stores, shop-in-shops and seasonal
pop-up locations. The Company also expects to offer a branded experience
on board Carnival Cruise Line ships through a wholesale agreement,
beginning in June of 2016.

Developing More Products

The Company plans to continue to develop and expand its offering of
intellectual property concepts designed to appeal to key consumer
segments. To that end, the Company recently successfully launched its
new Horses & Hearts Riding Club collection targeting its older girl
segment which has delivered higher than average dollars per transaction
with high attachment rates of accessory items to the plush products. In
addition, updates to established properties including Honey Girls and
Promise Pets, continued to fuel consumer interest. Each of the Company’s
intellectual property concepts are supported by digital content of
videos, games and/or music. The Company also expects to continue to
expand its wholesale and outbound licensed programs with the addition of
relevant categories throughout 2016, such as Spin Master Corp. and
Frankford Candy Build-A-Bear branded products that will launch during
the second half of the 2016 fiscal year.

Attracting More People

The Company expects to leverage its relationships with key licensors to
reach more people, particularly with the teen-plus consumer, through a
compelling offering of affinity, collectible, entertainment, sports and
fashion properties. Accordingly, the Company continued to develop its
Sports Central collection by offering limited edition products tied to
major championship sporting events such as the exclusive Denver Bronco’s
50th Anniversary Super Bowl bear which quickly sold out. The
Company expects its planned launch of enhanced enterprise selling
capabilities, which will allow consumers to order in store for home
delivery, to continue to expand this business. In addition, the Company
expects to attract its core segments and affinity consumers with new
Marvel products in advance of the upcoming film, Captain America:
Civil War
, as well as launches tied to upcoming theatrical
releases including Paramount Pictures’ Teenage Mutant Ninja
Turtles: Out of the Shadows
and Disney-Pixar’s Finding Dory.

Driving More Profitability

The Company expects to increase its 2016 GAAP pretax profit by 15% to
25% over its 2015 fiscal results by the disciplined execution of its
stated strategies including those initiatives detailed above as well as
its on-going efforts in process improvement and organizational
efficiency, system upgrades, value engineering and strategic pricing to
enhance merchandise margins.

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
May 10, 2016. The telephone replay is available by calling 885.384.5517.
The access code is 13634730.

About Build-A-Bear

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. Build-A-Bear
Workshop has approximately 400 stores worldwide where guests can create
customizable furry friends, including company-owned stores in the United
States, Canada, Denmark, Ireland, Puerto Rico, and the United Kingdom,
and franchise stores in Africa, Asia, Australia, Europe, Mexico and the
Middle East. The company was named to the FORTUNE 100 Best Companies to
Work For® list for the eighth year in a row in 2016. Build-A-Bear
Workshop, Inc. (NYSE: BBW) posted total revenue of $377.7 million in
fiscal 2015. For more information, visit the Investor Relations section
of buildabear.com.

Forward-Looking Statements

This press release contains certain statements that are, or may be
considered to be, “forward-looking statements” for the purpose of
federal securities laws, including, but not limited to, statements that
reflect our current views with respect to future events and financial
performance. We generally identify these statements by words or phrases
such as “may,” “might,” “should,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “intend,” “predict,” “future,” “potential” or
“continue,” the negative or any derivative of these terms and other
comparable terminology. All of the information concerning the potential
outcome of exploring strategic alternatives, our future liquidity,
future revenues, margins and other future financial performance and
results, achievement of operating of financial plans or forecasts for
future periods, sources and availability of credit and liquidity, future
cash flows and cash needs, success and results of strategic initiatives
and other future financial performance or financial position, as well as
our assumptions underlying such information, constitute forward-looking
information.

These statements are based only on our current expectations and
projections about future events. Because these forward-looking
statements involve risks and uncertainties, there are important factors
that could cause our actual results, level of activity, performance or
achievements to differ materially from the results, level of activity,
performance or achievements expressed or implied by these
forward-looking statements, including those factors discussed under the
caption entitled “Risks Related to Our Business” and “Forward-Looking
Statements” in our Annual Report on Form 10-K filed with the Securities
and Exchange Commission (“SEC”) on March 17, 2016 and other periodic
reports filed with the SEC which are incorporated herein.

All of our forward-looking statements are as of the date of this Press
Release only. In each case, actual results may differ materially from
such forward-looking information. We can give no assurance that such
expectations or forward-looking statements will prove to be correct. An
occurrence of or any material adverse change in one or more of the risk
factors or other risks and uncertainties referred to in this Press
Release or included in our other public disclosures or our other
periodic reports or other documents or filings filed with or furnished
to the SEC could materially and adversely affect our continuing
operations and our future financial results, cash flows, available
credit, prospects and liquidity. Except as required by law, the Company
does not undertake to publicly update or revise its forward-looking
statements, whether as a result of new information, future events or
otherwise.

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

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
April 2, % of Total April 4, % of Total
2016   Revenues (1)   2015   Revenues (1)
Revenues:
Net retail sales $ 94,056 99.0 $ 91,664 98.1
Commercial revenue 481 0.5 1,178 1.3
Franchise fees 439   0.5   551   0.6  
Total revenues 94,976   100.0   93,393   100.0  
Costs and expenses:
Cost of merchandise sold – retail (1) 48,557 51.6 48,792 53.2
Cost of merchandise sold – commercial (1) 249 51.8 360 30.6
Selling, general and administrative 39,681 41.8 37,220 39.9
Store preopening 1,244 1.3 20 0.0
Interest (income) expense, net (27 ) (0.0 ) (51 ) (0.1 )
Total costs and expenses 89,704   94.4   86,341   92.4  
Income before income taxes 5,272 5.6 7,052 7.6
Income tax expense 1,754   1.8   230   0.2  
Net income $ 3,518   3.7 $ 6,822   7.3
 
Income per common share:
Basic $ 0.22   $ 0.41  
Diluted $ 0.22   $ 0.40  
Shares used in computing common per share amounts:
Basic 15,410,699 16,399,397
Diluted 15,592,347 16,671,340
(1)   Selected income statement 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 Balance Sheets
(dollars in thousands, except per share data)
             
April 2, January 2, April 4,
2016 2016 2015
ASSETS
Current assets:
Cash and cash equivalents $ 30,778 $ 45,196 $ 54,679
Inventories 53,982 53,877 51,170
Receivables 10,440 13,346 8,182
Prepaid expenses and other current assets   15,070     16,312     13,891  
Total current assets 110,270 128,731 127,922
 
Property and equipment, net 68,886 67,741 59,223
Deferred tax assets 10,863 10,864 2,835
Other intangible assets, net 1,557 1,738 252
Other assets, net   4,439     4,260     1,805  
Total Assets $ 196,015   $ 213,334   $ 192,037  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 27,812 $ 42,551 $ 23,504
Accrued expenses 17,960 19,286 18,666
Gift cards and customer deposits 31,617 35,391 31,982
Deferred revenue   2,485     2,633     2,739  
Total current liabilities   79,874     99,861     76,891  
 
Deferred rent 13,167 12,156 12,660
Deferred franchise revenue 681 728 890
Other liabilities 1,213 1,175 1,155
 
Stockholders’ equity:
Common stock, par value $0.01 per share 158 158 173
Additional paid-in capital 65,713 66,009 70,780
Accumulated other comprehensive loss (10,614 ) (9,971 ) (9,697 )
Retained earnings   45,823     43,218     39,185  
Total stockholders’ equity   101,080     99,414     100,441  
Total Liabilities and Stockholders’ Equity $ 196,015   $ 213,334   $ 192,037  
 
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Selected Financial and Store Data
(dollars in thousands)
       
13 Weeks 13 Weeks
Ended Ended
April 2, April 4,
2016 2015
 
Other financial data:
Retail gross margin ($) (1) $ 45,499 $ 42,872
Retail gross margin (%) (1) 48.4 % 46.8 %
E-commerce sales $ 3,242 $ 3,249
Capital expenditures (2) $ 6,185 $ 2,878
Depreciation and amortization $ 3,811 $ 4,218
 
Store data (3):
Number of company-owned retail locations at end of period
North America 264 257
Europe 57   60  
Total company-owned retail locations 321   317  
 
Number of franchised stores at end of period 76 71
 
Company-owned store square footage at end of period (4)
North America 716,751 713,605
Europe 82,436   86,188  
Total square footage 799,187   799,793  
 
Consolidated comparable sales change (5)
North America 3.0 % (0.1 )%
Europe (1.8 )% 14.0 %
Consolidated 2.2 % 2.2 %
 
Stores 2.2 % 2.0 %
E-commerce 1.0 % 8.8 %
Consolidated 2.2 % 2.2 %
 
(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 e-commerce. North American stores are located in the United
States, Canada and Puerto Rico. In Europe, stores are located in the
United Kingdom, Ireland and 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 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.

Contacts

Build-A-Bear Workshop
Investors:
Voin Todorovic, 314-423-8000
x5221
or
Media:
Beth Kerley
bethk@buildabear.com