Build-A-Bear Workshop, Inc. Reports Second Quarter Results for Fiscal 2016 in Line with Guidance, Including the Negative Impact of Foreign Exchange

For Second Quarter 2016:

  • Pre-tax loss is $6.2 million, in line with guidance, including the
    unexpected negative impact of foreign exchange
  • Consolidated comparable sales decrease as expected; the 8.6%
    decrease follows an 8.8% increase in the fiscal 2015 second quarter
  • Stores remodeled in the new Discovery format on average deliver
    positive sales versus prior year in both North America and the United
    Kingdom

ST. LOUIS–(BUSINESS WIRE)–Build-A-Bear Workshop, Inc. (NYSE:BBW) today reported results for the
2016 second quarter and 26 weeks ended July 2, 2016. Second quarter
results included expansion in merchandise margin with consolidated
comparable sales and pre-tax loss in line with guidance, including a
negative impact of $0.5 million in currency losses due to the
re-measurement of the Company’s balance sheet driven by the unexpected
weakening of the British pound sterling versus the U.S. dollar at
quarter end.

Sharon Price John, Build-A-Bear Workshop President and Chief Executive
Officer, commented, “In the quarter, we continued to focus on executing
our strategy of positioning our stores and company to achieve our long
term sales and profitability goals. With that in mind, our results
included an anticipated decline in consolidated comparable sales given
the strength of last year’s Minions collection and an expected pre-tax
loss within our guidance, inclusive of the unexpected negative foreign
exchange impact.

“Our Discovery format stores continued to deliver positive results
compared to our heritage stores on key metrics including sales growth
and contribution margin. This positive performance, along with our
strong merchandise lineup in the second half, positions us to achieve
pre-tax income expansion for fiscal 2016 of 15% to 25%, which excludes
the impact of foreign exchange given that we are unable to predict
future fluctuations,” concluded Ms. John.

Second Quarter Fiscal 2016 Highlights (13 weeks ended July 2, 2016,
compared to the 13 weeks ended July 4, 2015):

  • Total revenues were $75.1 million compared to $81.0 million in the
    fiscal 2015 second quarter;
  • Consolidated net retail sales were $73.9 million compared to $80.3
    million in the fiscal 2015 second quarter;
  • Consolidated comparable sales (stores and e-commerce) decreased 8.6%
    following an 8.8% increase in the fiscal 2015 second quarter. The
    fiscal 2016 second quarter included an 8.3% decrease in North America,
    following a 6.4% increase in the fiscal 2015 second quarter and a
    10.0% decrease in Europe, following an increase of 19.0% in the fiscal
    2015 second quarter;
  • Sales from stores remodeled in the Company’s new Discovery format
    increased an average of 0.6% in North America and the United Kingdom;
  • Consolidated comparable e-commerce sales increased 11.7%, following an
    11.4% increase in the fiscal 2015 second quarter;
  • Retail gross margin was 42.2%, a decline of 130 basis points compared
    to the fiscal 2015 second quarter, reflecting a 10 basis point
    expansion in merchandise margin offset by deleverage of fixed
    occupancy cost;
  • Selling, general and administrative expenses (“SG&A”) were $37.1
    million, or 49.3% of total revenues compared to $35.7 million, or
    44.1% of total revenues in the fiscal 2015 second quarter. The
    increase in SG&A versus the prior year’s second quarter is primarily
    due to unrealized currency losses due to the re-measurement of the
    Company’s balance sheet driven by the significant movement in the
    British pound sterling, investments in new business initiatives,
    international expansion, the timing of marketing expenditures and the
    costs associated with the review of strategic alternatives;
  • Total business expansion expenses were $1.7 million, including store
    preopening expenses of $1.2 million related to the opening of new and
    remodeled stores, including the Discovery format stores. This compared
    to $0.2 million in business expansion expenses in the fiscal 2015
    second quarter;
  • Pre-tax loss was $6.2 million, which included $1.7 million in business
    expansion costs and $0.5 million in currency losses due to the
    re-measurement of the Company’s balance sheet driven by the unexpected
    weakening of the British pound sterling versus the U.S. dollar at
    quarter end. This compares to a pre-tax loss of $0.4 million in the
    fiscal 2015 second quarter;
  • Tax benefit was $1.9 million with a tax rate of 31.1% compared to a
    tax expense of $0.2 million with a tax rate of negative 43.4% in the
    fiscal 2015 second quarter; and
  • Net loss was $4.3 million, or $0.28 per share compared to net loss of
    $0.6 million, or $0.04 per share in the fiscal 2015 second quarter.

First Six Months Fiscal 2016 Highlights (26 weeks ended July 2, 2016,
compared to the 26 weeks ended July 4, 2015):

  • Total revenues were $170.1 million compared to $174.4 million in the
    first six months of fiscal 2015;
  • Consolidated net retail sales were $168.0 million, compared to $171.9
    million in the first six months of fiscal 2015;
  • Consolidated comparable sales (stores and e-commerce) decreased 2.8%
    following a 5.1% increase in the first six months of fiscal 2015. The
    first six months of fiscal 2016 included a 2.1% decrease in North
    America, following a 2.7% increase in the first six months of fiscal
    2015 and a 5.9% decrease in Europe, following an increase of 16.4% in
    the first six months of fiscal 2015;
  • Sales from stores remodeled in the Company’s new Discovery format
    increased an average of 5.8% in North America and the United Kingdom;
  • Consolidated comparable e-commerce sales increased 5.6%, following a
    9.9% increase in the first six months of fiscal 2015;
  • Retail gross margin expanded 40 basis points to 45.6% from 45.2% in
    the first six months of fiscal 2015;
  • SG&A was $76.7 million, or 45.1% of total revenues compared to $72.9
    million, or 41.8% of total revenues in the first six months of fiscal
    2015;
  • Total business expansion expenses were $3.7 million, including store
    preopening expenses of $2.4 million, related to the opening of new and
    remodeled stores, including the Discovery format stores. This compared
    to $0.3 million in business expansion expenses in the first six months
    of fiscal 2015;
  • Pre-tax loss was $1.0 million, which included $3.7 million in business
    expansion costs, compared to pre-tax income of $6.6 million in the
    first six months of fiscal 2015;
  • Tax benefit was $0.2 million with a tax rate of 19.4% compared to a
    tax expense of $0.4 million with a tax rate of 6.4% in the first six
    months of fiscal 2015; and
  • Net loss was $0.8 million or $0.05 per share, compared to net income
    of $6.2 million, or $0.35 per diluted share in the first six months of
    2015.

Store Activity

During the second quarter, the Company had six store openings, six
closures and completed 13 store remodels. As of July 2, 2016, the
Company operated 321 company-owned stores, including 31 in its new
Discovery format, with 263 locations in North America, 57 in Europe and
one in China. The Company’s international franchisees ended the period
with 77 stores in 11 countries.

Balance Sheet

The Company ended the fiscal 2016 second quarter with cash and cash
equivalents totaling $10.2 million and no borrowings under its revolving
credit facility. Total inventory at quarter-end was $55.5 million
compared to $50.4 million in the prior year, an increase of 10.1%. In
the fiscal 2016 second quarter, capital expenditures were $5.7 million,
and depreciation and amortization were $3.8 million.

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. The
Company retained Guggenheim Securities, LLC as its financial advisor and
Bryan Cave LLP as its legal counsel to assist with the strategic review.

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 has adjusted certain expectations in
consideration of the recent unexpected fluctuations of foreign exchange.
The Company’s current expectations are as follows:

  • Total revenue to increase in the low single-digit range compared to
    the prior year;
  • Consolidated comparable sales to increase in the low single-digit
    range;
  • Pre-tax income to grow 10% to 20% compared to the prior year GAAP
    results, which reflects its current estimate of foreign exchange.
    Excluding the impact of foreign exchange, pre-tax income is expected
    to grow 15% to 25%;
  • A tax rate of approximately 34%;
  • 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 approximately 345 to 350 stores, 50 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 with key initiatives in four areas
outlined below:

Expanding into More Places
The Company
is focused on expanding its owned and operated locations in 2016 by
adding approximately 15 to 20 stores, net of closures. Through a
combination of remodels and new openings, the Company finished the
quarter with 31 Discovery locations including the Company’s first store
in mainland China at Disneytown at the Shanghai Disney Resort which
opened in June. 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 launched a
branded experience on board Carnival Cruise Line ships through a
wholesale agreement. The Company expects Carnival to expand the
Build-A-Bear branded experience to 10 ships by the end 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’s new Horses & Hearts Riding Club collection was
launched for its older girl segment delivering higher than average
dollars per transaction. In addition, the Company recently launched
another proprietary collection called Monster Mixters which allows
consumers to add colorful arms and legs to cute monster bodies.
Separately, as part of the Company’s expanding outbound licensing
programs, Spin Master Corp. has launched a new Build-A-Bear branded toy
line which is expected to be supported with national television
advertising in the second half of 2016.

Attracting More People
The Company
expects to leverage its relationships with key licensors to reach more
people through a compelling offering of affinity, collectible,
entertainment, sports and fashion properties. The Company has key second
half offerings of licensed products, including an updated Disney
Princess collection, a product line tied to DreamWorks Animation’s film, Trolls,
and updated Star Wars products in advance of the next film release
expected in December. The Company also expects to build on its eight
consecutive quarters of consolidated e-commerce growth with enhanced
enterprise selling capabilities which will allow consumers to order in
store for home delivery. This program is rolling out in stores across
the U.S. in advance of the holiday season.

Driving More Profitability
The Company
expects to increase its 2016 pre-tax income by 10% to 20% compared to
the prior year GAAP results, which reflects its current estimate of
foreign exchange. Excluding the impact of foreign exchange, pre-tax
income is expected to grow 15% to 25% 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
August 11, 2016. The telephone replay is available by calling
885.384.5517. The access code is 13641175.

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, 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 Operations
(dollars in thousands, except share and per share data)
                         
13 Weeks 13 Weeks
Ended Ended
July 2, % of Total July 4, % of Total

     2016     

   

  Revenues (1)

     2015     

   

  Revenues (1)

Revenues:
Net retail sales $ 73,928 98.4 $ 80,279 99.1
Commercial revenue 798 1.1 187 0.2
Franchise fees     413   0.5     548   0.7
Total revenues     75,139   100.0     81,014   100.0
Costs and expenses:
Cost of merchandise sold – retail (1) 42,760 57.8 45,378 56.5
Cost of merchandise sold – commercial (1) 429 53.8 183 97.9
Selling, general and administrative 37,050 49.3 35,691 44.1
Store preopening 1,154 1.5 242 0.3
Interest (income) expense, net     (11 ) (0.0)     (42 ) (0.1)
Total costs and expenses     81,382   108.3     81,452   100.5
Loss before income taxes (6,243 ) (8.3) (438 ) (0.5)
Income tax (benefit) expense     (1,942 ) (2.6)     190   0.2
Net loss $   (4,301 ) (5.7) $   (628 ) (0.8)
 
Loss per common share:
Basic $   (0.28 ) $   (0.04 )
Diluted $   (0.28 ) $   (0.04 )
Shares used in computing common per share amounts:
Basic 15,486,462 16,861,458
Diluted 15,486,462 16,861,458
 
 

(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)
                               
26 Weeks 26 Weeks
Ended Ended
July 2, % of Total July 4, % of Total

  2016  

 

  Revenues (1)

  2015  

 

  Revenues (1)

Revenues:
Net retail sales $ 167,984 98.7 $ 171,943 98.6
Commercial revenue 1,279 0.8 1,364 0.8
Franchise fees     852   0.5     1,099   0.6
Total revenues     170,115   100.0     174,406   100.0
Costs and expenses:
Cost of merchandise sold – retail (1) 91,317 54.4 94,170 54.8
Cost of merchandise sold – commercial (1) 678 53.0 542 39.7
Selling, general and administrative 76,731 45.1 72,911 41.8
Store preopening 2,398 1.4 262 0.2
Interest (income) expense, net     (38 ) (0.0)     (93 ) (0.1)
Total costs and expenses     171,086   100.6     167,792   96.2
(Loss) income before income taxes (971 ) (0.6) 6,614 3.8
Income tax (benefit) expense     (188 ) (0.1)     420   0.2
Net (loss) income $   (783 ) (0.5) $   6,194   3.6
 
(Loss) income per common share:
Basic $   (0.05 ) $   0.36  
Diluted $   (0.05 ) $   0.35  
Shares used in computing common per share amounts:
Basic 15,448,580 16,917,272
Diluted 15,448,580 17,162,024
 
 

(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 Balance Sheets
(dollars in thousands, except share and per share data)
                     
July 2, January 2, July 4,
2016 2016 2015
ASSETS
Current assets:
Cash and cash equivalents $     10,156 $     45,196 $     41,813
Inventories 55,463 53,877 50,359
Receivables 9,380 13,346 7,693
Prepaid expenses and other current assets       13,817         16,312         14,173  

Total current assets

88,816 128,731 114,038
 
Property and equipment, net 69,872 67,741 58,439
Deferred tax assets 10,944 10,864 2,821
Other intangible assets, net 1,859 1,738 382
Other assets, net       4,869         4,260         1,904  
Total Assets $     176,360   $     213,334   $     177,584  
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 22,404 $ 42,551 $ 23,140
Accrued expenses 10,427 19,286 13,269
Gift cards and customer deposits 28,864 35,391 29,746
Deferred revenue       2,250         2,633         2,596  
Total current liabilities       63,945         99,861         68,751  
 
 
Deferred rent 14,412 12,156 11,700
Deferred franchise revenue 636 728 836
Other liabilities 927 1,175 1,113
 
 
Stockholders’ equity:
Common stock, par value $0.01 per share 159 158 170
Additional paid-in capital 66,455 66,009 69,598
Accumulated other comprehensive loss (11,696 ) (9,971 ) (8,503 )
Retained earnings       41,522         43,218         33,919  
Total stockholders’ equity       96,440         99,414         95,184  
Total Liabilities and Stockholders’ Equity $     176,360   $     213,334   $     177,584  
 
 
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Selected Financial and Store Data
(dollars in thousands, except square foot data)
                                   
13 Weeks 13 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended
July 2, July 4, July 2, July 4,
  2016   2015   2016  

   2015   

 
Other financial data:
Retail gross margin ($) (1) $ 31,168 $ 34,901 $ 76,667 $ 77,773
Retail gross margin (%) (1) 42.2% 43.5% 45.6% 45.2%
E-commerce sales $ 2,645 $ 2,412 $ 5,886 $ 5,660
Capital expenditures, net (2) $ 5,696 $ 3,202 $ 11,882 $ 6,080
Depreciation and amortization $ 3,808 $ 4,015 $ 7,619 $ 8,233
 
Store data (3):
Number of company-owned retail locations at end of period
North America 263 255
Europe 57 60
Asia   1    
Total company-owned retail locations 321 315
 
Number of franchised stores at end of period 77 74
 
Company-owned store square footage at end of period (4)
North America 708,554 693,384
Europe 81,454 86,188

Asia

  1,750    
Total square footage 791,758 779,572
 
Consolidated comparable sales change (5)
North America (8.3)% 6.4% (2.1)% 2.7%
Europe   (10.0)%   19.0%   (5.9)%     16.4%
Consolidated   (8.6)%   8.8%   (2.8)%     5.1%
 
Stores (9.3)% 8.7% (3.1)% 5.0%
E-commerce   11.7%   11.4%   5.6%     9.9%
Consolidated   (8.6)%   8.8%   (2.8)%     5.1%
 
(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. 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 and Asia 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

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