Build-A-Bear Workshop, Inc. Reports Fiscal Year 2016 Compared to Fiscal Year 2015 Results Reflecting a Decrease in Consolidated Comparable Sales and Pre-Tax Income Impacted by December Retail Traffic Declines

  • Consolidated comparable sales decline of 4.4% in fiscal 2016
  • GAAP pre-tax income of $5.3 million, including $5.7 million in
    adjustments in fiscal 2016
  • At year end, the consolidated cash balance was $32.5 million;
    consolidated inventories were down $2.0 million, or 3.7%

ST. LOUIS–(BUSINESS WIRE)–Build-A-Bear Workshop, Inc. (NYSE:BBW) today reported results for the
fourth quarter and fiscal year ended December 31, 2016.

Fourth Quarter 2016 Highlights (13 weeks ended December 31, 2016,
compared to the 13 weeks ended January 2, 2016):

  • Consolidated comparable sales declined 8.3%. In addition to the impact
    of the overall industry reported declines in mall traffic, principally
    in North America in December, the sales decrease versus expectations
    is attributable to:

    • Changes in media and marketing tactics, shifts in licensed product
      sales and the execution of unplanned promotional activities;
    • A decrease in Build-A-Bear gift card redemptions (despite a
      double-digit increase in fourth quarter gift card sales); and
    • Missed e-commerce sales in December due to the inability of the
      Company’s systems to manage the increased traffic to its site.
  • Pre-tax income was $3.5 million, including $4.7 million in
    adjustments, compared to pre-tax income of $9.9 million, including
    $0.8 million in adjustments, in the fiscal 2015 fourth quarter;
  • Income tax expense was $3.2 million with an effective tax rate of
    90.9%, driven by discrete tax items, compared to an income tax benefit
    of $10.2 million in the prior year’s fourth quarter driven by the
    reversal of the Company’s remaining U.S. tax valuation allowance in
    fiscal 2015;
  • Net income was $0.3 million, or $0.02 per diluted share, compared to
    net income of $20.1 million, or $1.21 per diluted share, in the fiscal
    2015 fourth quarter; and
  • Adjusted net income was $5.0 million, or $0.31 per diluted share,
    compared to adjusted net income of $10.6 million, or $0.64 per diluted
    share, in the fiscal 2015 fourth quarter. (See Reconciliation of Net
    Income to Adjusted Net Income.)

Sharon Price John, Build-A-Bear Workshop President and Chief Executive
Officer, commented, “After reporting three consecutive years of
comparable sales increases and improved profitability, these results are
clearly disappointing. Through November, consolidated comparable sales
were positive despite slightly negative traffic levels. However, similar
to industry reported retail trends, our December traffic levels abruptly
reversed, which adversely impacted both sales and profit for the quarter
and the year. That, along with shifts in licensed product demand
particularly related to Star Wars, and changes in media and marketing
activities, resulted in an overall decline in store transactions.
Additionally, we were unable to offset the traffic trend with added
promotions or convert the swing in consumer shopping behavior, including
the buying shift to e-commerce, as our internal systems were unable to
process the subsequently higher traffic to the website.

“Even with December’s disruption, we believe we are a stronger company
than at the beginning of the turn-around in 2013. Our on-going
strategies are designed to position Build-A-Bear for the future and are
intended to further leverage the continuing power of our brand to grow
our business with expanded revenue streams. We are focused on making key
operational and marketing corrections. We will also continue to upgrade
and diversify our real estate portfolio with our proven Discovery
format, including a shift to non-traditional solutions, particularly
given the significant number of leases that are coming to term in the
next few years. Additionally, as previously reported, we plan to enhance
our web platform and upgrade our e-commerce systems in 2017. Finally,
although gift card redemption rates were below past levels, more
Build-A-Bear gift cards were sold in the fourth quarter versus the prior
year, which are expected to be redeemed in stores throughout 2017,”
concluded Ms. John.

Additional Fourth Quarter 2016 Details (13 weeks ended December 31,
2016, compared to the 13 weeks ended January 2, 2016):

  • Total revenues were $110.3 million compared to $117.7 million in the
    fiscal 2015 fourth quarter. The decline in total revenues reflects a
    decrease in consolidated comparable sales and unfavorable currency
    exchange rates partially offset by increases in commercial revenue
    from the Company’s strategic wholesale and licensing initiatives;
  • Consolidated net retail sales were $107.7 million compared to $116.5
    million in the fiscal 2015 fourth quarter;
  • Consolidated comparable sales decreased 8.3%, including a 10.2%
    decrease in North America and a 0.4% decrease in Europe. Consolidated
    comparable e-commerce sales increased 2.0%;
  • Sales from stores remodeled in the Company’s Discovery format in North
    America and the United Kingdom decreased an average of 1.7%;
  • Retail gross margin declined 520 basis points to 46.0% compared to
    51.2% in the fiscal 2015 fourth quarter, primarily driven by
    impairment charges and the deleveraging of fixed occupancy expenses;
    and
  • Selling, general and administrative expense (“SG&A”) decreased $2.8
    million to $47.0 million, or 42.6% of total revenues, compared to
    42.4% of total revenues in the fiscal 2015 fourth quarter.

Fiscal Year 2016 (52 weeks ended December 31, 2016, compared to 52
weeks ended January 2, 2016):

  • Total revenues were $364.2 million compared to $377.7 million in
    fiscal 2015;
  • Consolidated net retail sales were $357.6 million compared to $372.7
    million in fiscal 2015;
  • Consolidated comparable sales decreased 4.4%, including a 4.5%
    decrease in North America and a 3.8% decrease in Europe. Consolidated
    comparable e-commerce sales increased 7.2%;
  • Sales from stores remodeled in the Company’s Discovery format in North
    America and the United Kingdom increased an average of 4.0%;
  • Retail gross margin decreased 190 basis points to 45.2% compared to
    47.1% in fiscal 2015;
  • SG&A decreased $2.4 million to $157.2 million, or 43.2% of total
    revenues, compared to 42.3% of total revenues in fiscal 2015;
  • Pre-tax income was $5.3 million, including $5.7 million in
    adjustments, compared to a pre-tax income of $17.9 million, including
    $2.4 million in adjustments, in fiscal 2015;
  • Income tax expense was $3.9 million with an effective tax rate of
    74.1%, driven by discrete tax items, compared to an income tax benefit
    of $9.4 million, driven by the reversal of the remaining U.S. tax
    valuation allowance in fiscal 2015;
  • Net income was $1.4 million, or $0.09 per diluted share, compared to
    net income of $27.3 million, or $1.59 per diluted share, in fiscal
    2015; and
  • Adjusted net income was $6.6 million, or $0.41 per diluted share,
    compared to adjusted net income of $19.3 million, or $1.12 per diluted
    share in fiscal 2015. (See Reconciliation of Net Income to Adjusted
    Net Income.)

Impact of Foreign Currency:

The Company estimates that the significant movement in the British pound
sterling relative to the U.S. dollar had a negative impact on its 2016
revenues and pre-tax income of approximately $9.1 million and $3.1
million, respectively, as compared to the prior year. The transactional
impact included in the Reconciliation of Net Income to Adjusted Net
Income is a component of the impact on pre-tax income.

Store Activity:

In fiscal 2016, capital expenditures were $28.1 million to support the
upgrade and repositioning of stores as well as investment in
infrastructure. In fiscal 2016, the Company opened 22 locations and
converted 24 stores into its Discovery format. The Company finished the
year with 57 stores in the Discovery format across geographies. Sales at
Discovery stores with prior year comparisons outperformed heritage
stores in fiscal 2016. Depreciation and amortization was $16.2 million.

In fiscal 2017, the Company expects to open 20 to 25 new stores, close 5
to 10 stores and remodel 20 to 25 stores into a Discovery format.
Capital expenditures are expected to be approximately $20 million to $25
million to support the store activity as well as further infrastructure
improvements. Depreciation and amortization is expected to be $16
million to $18 million.

The Company ended the year with 346 stores, including 285 in North
America, 60 in Europe and one in China. The Company’s international
franchisees ended the year with 92 stores in 11 countries.

Balance Sheet:

As of December 31, 2016, cash and cash equivalents totaled $32.5
million. The Company ended fiscal 2016 with no borrowings under its
revolving credit facility. Total inventory at year-end was $51.9 million
compared to $53.9 million at 2015 year-end, a decrease of 3.7%.

Review of Strategic Alternatives:

In May 2016, the Company announced that its Board of Directors had
authorized an exploration of a full range of strategic alternatives. 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 the 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.

2017 Key Strategic Initiatives:

The Company expects to evolve and continue to execute its strategic plan
with key initiatives in the areas outlined below, which are intended to
drive long-term shareholder value:

Channel Evolution through Diversifying Real Estate
and Upgrading E-Commerce Capabilities

The Company expects to continue to make improvements to its aged store
fleet by leveraging its new Discovery format in conjunction with select
natural lease events. The Company also expects to continue to diversify
stores into non-traditional locations inclusive of its new, lower
capital, more flexible “concourse shop” model following initial results
of a fourth quarter test. As noted, the Company expects to add 20 to 25
new locations in fiscal 2017 and close 5 to 10 existing locations to
finish 2017 with 356 to 366 company-owned retail locations.

Additionally, the Company expects its international franchisees to open
approximately 10 stores in 2017, and it intends to add new franchise
partners in select markets. Separately, the Company is planning a
comprehensive enhancement of its website platform and upgrade of its
e-commerce systems in order to capitalize on the changing consumer
shopping patterns while expanding its enterprise selling capabilities.

Product Expansion through Owned Intellectual
Property Development, Relevant Licensing and Outbound Brand Licensing
into New Categories

To meet the needs of its core consumer base (boys and girls ages 3 to
12) while systematically building its secondary consumer segments
(including collectors, gift-givers and its teen-plus target), the
Company plans to continue to develop and expand its offering of
successful intellectual property concepts balanced with core products
and a comprehensive program of key licensed properties. The Company also
expects to continue to expand its plush wholesale/corporate sales
initiative and to build on its outbound branded licensed programs.

Brand and Experience Amplification through
Marketing and Entertainment Integration

The Company intends to adjust its marketing programs to elevate and
integrate efforts to create more synergy across channels while
leveraging its content development strategy, which includes mobile apps,
music videos, and other entertainment opportunities to increase
engagement, improve efficiency and lead to profitable sales growth.

Continued Focus on Delivering Long-Term
Profitability Improvement

The Company is focused on improving profitability through the execution
of its stated strategies detailed above as well as disciplined expense
management and on-going efforts in process and systems upgrades.

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 website, http://IR.buildabear.com.
The call is expected to conclude by 10 a.m. ET.

A replay of the conference call webcast will be available in the
investor relations Web site for one year. A telephone replay will be
available beginning at approximately noon ET today until midnight ET on
February 23, 2017. The telephone replay is available by calling
(844)-512-2921. The access code is 13654086.

About Build-A-Bear

Celebrating 20 years of business in 2017, Build-A-Bear is a global brand
kids love and parents trust that 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, the
United Kingdom and China, 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 a 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 Statements of Income
(dollars in thousands, except share and per share data)
         
13 Weeks 13 Weeks
Ended Ended
December 31, % of Total January 2, % of Total
2016 Revenues (1) 2016 Revenues (1)
Revenues:
Net retail sales $ 107,739 97.6 $ 116,469 99.0
Commercial revenue 1,711 1.6 624 0.5
Franchise fees 892 0.8 572 0.5
Total revenues 110,342 100.0 117,665 100.0
Costs and expenses:
Cost of merchandise sold – retail (1) 58,136 54.0 56,813 48.8
Cost of merchandise sold – commercial (1) 1,040 60.8 282 45.2
Selling, general and administrative 47,040 42.6 49,876 42.4
Store preopening 580 0.5 772 0.7
Interest expense (income), net 63 0.1 5 0.0
Total costs and expenses 106,859 96.8 107,748 91.6
Income before income taxes 3,483 3.2 9,917 8.4
Income tax (benefit) expense 3,165 2.9 (10,168) (8.6)
Net income $ 318 0.3 $ 20,085 17.1
 
Income per common share:
Basic $ 0.02 $ 1.23
Diluted $ 0.02 $ 1.21
Shares used in computing common per share amounts:
Basic 15,523,612 16,064,173
Diluted 15,711,227 16,255,329
(1)   Selected statement of income 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 Income
(dollars in thousands, except share and per share data)
         
52 Weeks 52 Weeks
Ended Ended
December 31, % of Total January 2, % of Total
2016   Revenues (1) 2016   Revenues (1)
Revenues:
Net retail sales $ 357,593 98.2 $ 372,715 98.7
Commercial revenue 4,312 1.2 2,783 0.7
Franchise fees 2,299 0.6 2,196 0.6
Total revenues 364,204 100.0 377,694 100.0
Costs and expenses:
Cost of merchandise sold – retail (1) 195,914 54.8 197,101 52.9
Cost of merchandise sold – commercial (1) 2,253 52.2 1,375 49.4
Selling, general and administrative 157,174 43.2 159,612 42.3
Store preopening 3,549 1.0 1,851 0.5
Interest expense (income), net 5 0.0 (143) (0.0)
Total costs and expenses 358,895 98.5 359,796 95.3
Income before income taxes 5,309 1.5 17,898 4.7
Income tax (benefit) expense 3,932 1.1 (9,447) (2.5)
Net income $ 1,377 0.4 $ 27,345 7.2
 
Income per common share:
Basic $ 0.09 $ 1.61
Diluted $ 0.09 $ 1.59
Shares used in computing common per share amounts:
Basic 15,442,086 16,642,269
Diluted 15,622,273 16,867,356
(1)   Selected statement of income 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)
     
December 31, January 2,
  2016     2016  
ASSETS
Current assets:
Cash and cash equivalents $ 32,483 $ 45,196
Inventories 51,885 53,877
Receivables 12,939 13,346
Prepaid expenses and other current assets   12,737     16,312  
Total current assets 110,044 128,731
 
Property and equipment, net 74,924 67,741
Deferred tax assets 8,256 10,864
Other intangible assets, net 1,721 1,738
Other assets, net   4,650     4,260  
Total Assets $ 199,595   $ 213,334  
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 27,861 $ 42,551
Accrued expenses 15,897 19,286
Gift cards and customer deposits 37,070 35,391
Deferred revenue   2,029     2,633  
Total current liabilities   82,857     99,861  
 
Deferred rent 15,438 12,156
Deferred franchise revenue 565 728
Other liabilities 1,623 1,175
 
 
Stockholders’ equity:
Common stock, par value $0.01 per share 159 158
Additional paid-in capital 68,001 66,009
Accumulated other comprehensive loss (12,727 ) (9,971 )
Retained earnings   43,679     43,218  
Total stockholders’ equity   99,112     99,414  
Total Liabilities and Stockholders’ Equity $ 199,595   $ 213,334  
 
               
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Selected Financial and Store Data
(dollars in thousands, except for per square foot data)
   
13 Weeks 13 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
December 31, January 2, December 31, January 2,
2016 2016 2016 2016
 
Other financial data:
Retail gross margin ($) (1) $ 49,603 $ 59,656 $ 161,679 $ 175,614
Retail gross margin (%) (1) 46.0% 51.2% 45.2% 47.1%
Capital expenditures (2) $ 9,906 $ 11,524 $ 28,119 $ 24,388
Depreciation and amortization $ 4,598 $ 4,157 $ 16,171 $ 16,419
 
Store data (3):
Number of company-owned retail locations at end of period
North America 285 269
Europe 60 60
Asia 1
Total company-owned retail locations 346 329
 
Number of franchised stores at end of period 92 77
 
Company-owned store square footage at end of period (4)
North America 749,197 719,535
Europe 85,900 85,908
Asia 1,750
Total square footage 836,847 805,443
 
Net retail sales per gross square foot – North America (5) $ 371 $ 394
Net retail sales per selling square foot – Europe (6) £ 557 £ 551
 
Comparable sales change (7)
North America (10.2)% (4.2)% (4.5)% (0.0)%
Europe (0.4)% (10.0)% (3.8)% 4.8%
Consolidated (8.3)% (5.6)% (4.4)% 1.0%
 
Stores (9.0)% (6.9)% (4.9)% 0.5%
E-commerce 2.0% 16.4% 7.2% 11.8%
Consolidated (8.3)% (5.6)% (4.4)% 1.0%
 
 
(1) Retail gross margin represents net retail sales less cost of
merchandise sold – retail. 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. In Asia, the store is located
in China.
(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) Net retail sales per gross square foot represents net retail sales
from stores open throughout the entire period divided by the total
gross square footage of such stores in North America. Calculated on
an annual basis only.
(6) Net retail sales per selling square foot for Europe represents net
retail sales in local currency from stores open throughout the
entire period in Europe divided by the total selling square footage
of such stores. Calculated on an annual basis only.
(7) 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.
 
* 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.

Contacts

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

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