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Build-A-Bear Workshop Inc$5.55$.01.18%

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 Build-A-Bear Workshop, Inc. Reports First Quarter Fiscal 2018 Results
   Thursday, May 31, 2018 6:45:00 AM ET

ST. LOUIS--(BUSINESS WIRE)-- Build-A-Bear Workshop, Inc. (NYSE:BBW) today reported results for the first quarter ended May 5, 2018. Given the Company’s previously announced fiscal year-end change, all references to prior year results are based on the recast 13 weeks ended April 29, 2017.

Sharon Price John, Build-A-Bear Workshop President and Chief Executive Officer, commented, “In the first quarter, as we previously shared, we expected to see a sales and profit decline versus the prior year due to adoption of the new revenue recognition standard and the recent closure of our largest, most productive store located in Anaheim, California. Separately, with a less robust movie lineup for the year, we anticipated softness in licensed product performance. And, while we expected continued traffic declines, this headwind was further exacerbated by the unexpected Toys“R”Us liquidation, which according to our analysis eroded sales in nearby locations.

Ms. John continued, “At the same time, we saw ongoing improvements in operational aspects of the business and progress in key areas of our diversification strategy. Specifically, we generated improvements in conversion along with record high levels in both dollars-per-transaction and units-per-transaction while continuing the transformation of the business from that of a traditional in-line, mall-based retailer to a multi-faceted consumer brand. In addition, sales of proprietary product increased, ecommerce business grew at a double-digit pace, and international franchise revenue benefited from our recent China expansion. We also remained focused on rebalancing our store base toward more productive formats and locations. I continue to be encouraged by the overall strategies we have in place that are designed to capitalize on the power of our iconic brand by increasing the lifetime value of our guests and adding margin-enhancing revenue streams to our Company.”

First Quarter 2018 Highlights (13 weeks ended May 5, 2018, compared to the 13 weeks ended April 29, 2017):

  • Total revenues were $83.2 million compared to $91.2 million in the fiscal 2017 first quarter;
  • Consolidated net retail sales were $81.4 million compared to $88.7 million in the fiscal 2017 first quarter;
  • Retail gross margin declined 340 basis points to 44.3% and included a 30 basis point increase in merchandise margin offset by occupancy deleverage driven by lower sales;
  • Selling, general and administrative expenses (“SG&A”) were $36.3 million, or 43.7% of total revenues, compared to $39.2 million, or 43.0% of total revenues, in the fiscal 2017 first quarter;
  • GAAP pre-tax income decreased to $0.6 million, including an estimated $0.6 million negative pre-tax impact from adoption of the new revenue recognition standard, compared to $4.4 million in the fiscal 2017 first quarter;
  • Income tax expense was $0.3 million with an effective tax rate of 45.2%, compared to $1.8 million with an effective tax rate of 40.6% in the fiscal 2017 first quarter. Further, the first fiscal quarters of 2018 and 2017 included the recognition of $0.1 million and $0.2 million, respectively, of net additional tax expense associated with vested share-based payments; and
  • Net income was $0.4 million, or $0.02 per diluted share, compared to $2.6 million, or $0.16 per diluted share, in the fiscal 2017 first quarter.

Store Activity:

In the first quarter of fiscal 2018, the Company opened 2 locations, closed 4 locations and remodeled or reformatted 7 stores into a Discovery format, ending the quarter with 32% of its store base in an updated Discovery design. As of May 5, 2018, the Company operated 352 corporately-managed locations, including 294 in North America and 58 outside of North America. The Company’s international franchisees ended the quarter with 96 stores in 12 countries.

Balance Sheet:

As of May 5, 2018, cash and cash equivalents totaled $18.9 million. The Company ended the quarter with no borrowings under its revolving credit facility. Total inventory at quarter-end was $49.4 million compared to $55.2 million at the end of the first quarter of 2017, a decrease of 10.5%. In the first quarter of fiscal 2018, capital expenditures totaled $3.0 million and depreciation and amortization were $4.1 million.

Fiscal Year Change:

As previously disclosed, the Company's Board of Directors approved a change in the Company’s fiscal year-end, which previously ended on the Saturday closest to December 31, to the Saturday closest to January 31. This change was effective following the end of the Company’s 2017 fiscal year. As a result of this change, the Company is including a one fiscal month transition period, December 31, 2017 through February 3, 2018, as part of this first quarter press release.

Share Repurchase:

Since December 30, 2017, the Company repurchased 616,141 shares of its common stock for $5.3 million, including 528,228 shares during the transition period and 87,913 shares during the first quarter of fiscal 2018. As of May 5, 2018, the Company had $10.0 million remaining on the share repurchase authorization that was adopted in August 2017.

Accounting Changes Impacting Revenue Recognition:

On December 31, 2017, the Company adopted “Revenue from Contracts with Customers” (Accounting Standard Codification “Topic 606”), as required. While the majority of the Company’s revenues were not impacted by Topic 606, the timing of the recognition of breakage revenue for certain gift cards changed. Upon adoption, the Company recorded a pre-tax cumulative effect increase to retained earnings of approximately $12.3 million representing gift card breakage revenue not previously recognized that was accelerated due to Topic 606. The change will negatively impact the Company’s fiscal 2018 total revenue and pre-tax income by an estimated $3.9 million with the remaining balance of the cumulative effect adjustment predominantly impacting fiscal years 2019 and 2020.

2018 Expectations (52 weeks ended February 2, 2019 compared to the 53 weeks ended February 3, 2018):

The Company is providing guidance for its expectations for fiscal year 2018. On a GAAP basis, the Company currently expects:

  • Total revenue for the year to be in the range of $345 to $355 million. For the remainder of the fiscal year, the Company expects revenue to be flat to a slight increase compared to the unaudited recast fiscal year ended February 3, 2018 excluding;
    • the balance of the negative impact of the previously mentioned accounting changes affecting second quarter through fourth quarter, and
    • the revenue from the one extra week included in the recast 2017 fiscal year;
  • Pre-tax income to be in the range of $8.0 million to $11.5 million. As a reminder, 2018 guidance reflects an estimated $3.9 million negative impact due to accounting changes in revenue recognition;
  • Diluted earnings per share to be in the range of $0.40 to $0.57, using an effective tax rate of approximately 27%, excluding discrete items;
  • Capital expenditures to be in the range of $15 to $18 million with depreciation and amortization in the range of $16 to $17 million; and
  • To end the year with cash and cash equivalents in the range of $25 to $30 million.

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 website for one year. A telephone replay will be available beginning at approximately noon ET today until midnight ET on June 7, 2018. The telephone replay is available by calling (844) 512-2921. The access code is 13680205.

About Build-A-Bear

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 over 400 stores worldwide where guests can create customizable furry friends, including corporately-managed stores in the United States, Canada, China, Denmark, Ireland, Puerto Rico, and the United Kingdom, and franchise stores in Africa, Asia, Australia, Europe, Mexico and the Middle East. In 2018, Build-A-Bear was named to the FORTUNE 100 Best Companies to Work For® list for the 10th year in a row. Build-A-Bear Workshop, Inc. (NYSE:BBW) posted total revenue of $357.9 million in fiscal 2017. 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 15, 2018 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 5 Weeks
Ended Ended Ended
May 5, % of Total April 29, % of Total February 3, % of Total
2018 Revenues (1) 2017   Revenues (1)

2018 (2)

Revenues (1)
Revenues:
Net retail sales $ 81,425 97.9 $ 88,743 97.3 29,586 97.9
Commercial revenue 1,019 1.2 2,038 2.2 358 1.2
International franchising 740 0.9 422   0.5 279   0.9
Total revenues 83,184 100.0 91,203   100.0 30,223   100.0
Cost of merchandise sold:
Cost of merchandise sold - retail (1) 45,385 55.7 46,456 52.3 16,062 54.3
Cost of merchandise sold - commercial (1) 479 47.0 1,101 54.0 259 72.3
Cost of merchandise sold - international franchising (1) 332 44.9   0.0   0.0
Total cost of merchandise sold 46,196 55.5 47,557   52.1 16,321   54.0
Consolidated gross profit 36,988 44.5 43,646 47.9 13,902 46.0
 
Selling, general and administrative expense 36,337 43.7 39,228 43.0 14,920 49.4
Interest expense (income), net 5 0.0 (6 ) (0.0) 10   0.0
Income before income taxes 646 0.8 4,424 4.9 (1,028 ) (3.4)
Income tax expense (benefit) 292 0.4 1,795   2.0 (183 ) (0.6)
Net income $ 354 0.4 $ 2,629   2.9 $ (845 ) (2.8)
 
Income per common share:
Basic $ 0.02 $ 0.17   $ (0.06 )
Diluted $ 0.02 $ 0.16   $ (0.06 )
Shares used in computing common per share amounts:
Basic 14,582,573 15,561,804 14,860,511
Diluted 14,722,989 15,695,322 14,860,511
(1)   Selected statement of income data expressed as a percentage of total revenues, except cost of merchandise sold - retail, cost of merchandise sold - commercial and cost of merchandise sold - international franchising that are expressed as a percentage of net retail sales, commercial revenue and international franchising, 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.
(2) On January 4, 2018, the Company's Board of Directors approved a change in the Company’s fiscal year-end, which previously ended on the Saturday closest to December 31, to the Saturday closest to January 31. This change was effective beginning with the Company’s current 2018 fiscal year, which began on February 4, 2018 and will end on February 2, 2019. As a result of the change, the Company had a one fiscal month transition period, December 31, 2017 through February 3, 2018.
 

 
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
   
May 5, December 30, April 29,
  2018     2017     2017  
 
ASSETS
Current assets:
Cash and cash equivalents $ 18,881 $ 30,445 $ 30,189
Inventories 49,423 53,136 55,202
Receivables 8,968 13,302 6,465
Prepaid expenses and other current assets   11,493     13,346     11,575  
Total current assets 88,765 110,229 103,431
 
Property and equipment, net 76,410 77,751 73,937
Deferred tax assets 4,102 6,381 10,090
Other intangible assets, net 950 995 1,512
Other assets, net   2,427     2,633     2,407  
Total Assets $ 172,654   $ 197,989   $ 191,377  
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,965 $ 18,942 $ 23,442
Accrued expenses 8,739 15,189 12,099
Gift cards and customer deposits 17,007 33,926 31,596
Deferred revenue and other   1,893     1,806     1,943  
Total current liabilities   40,604     69,863     69,080  
 
Deferred rent 17,697 17,906 16,458
Deferred franchise revenue 1,142 1,208 516
Other liabilities 1,794 1,697 1,911
 
 
Stockholders' equity:
Common stock, par value $0.01 per share 151 155 160
Additional paid-in capital 66,908 68,962 69,187
Accumulated other comprehensive loss (11,546 ) (11,562 ) (12,061 )
Retained earnings   55,904     49,760     46,126  
Total stockholders' equity   111,417     107,315     103,412  
Total Liabilities and Stockholders' Equity $ 172,654   $ 197,989   $ 191,377  
 

 
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
Ended Ended
May 5, April 29,
2018 2017
 
Other financial data:
Retail gross margin ($) (1) $ 36,040 $ 42,287
Retail gross margin (%) (1) 44.3 % 47.7 %
Capital expenditures (2) $

3,030

$ 3,808
Depreciation and amortization $ 4,115 $ 3,907
 
Store data (3):
Number of corporately-managed retail locations at end of period
North America 294 276
Europe 57 60
Asia 1   1  
Total corporately-managed retail locations 352   337  
 
Number of franchised stores at end of period 96 88
 
Corporately-managed store square footage at end of period (4)
North America 716,007 731,427
Europe 79,236 85,177
Asia 1,750   1,750  
Total square footage 796,993   818,354  
(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.
 

 
Build-A-Bear Workshop, Inc. and subsidiaries
Selected recast historical financial information (unaudited)
(dollars in millions)          
Fiscal 2017

13 weeks ended
April 29, 2017

13 weeks ended
July 29, 2017

13 weeks ended
October 28,
2017

14 weeks ended
February 3,
2018

53 weeks ended
February 3,
2018

Net retail sales $ 88,743 $ 76,383 $ 74,441 $ 115,478 $ 355,045
Commercial revenue 2,038 2,086 1,196 1,025 6,345
International franchising   422     711     514     923     2,570  
Total revenues 91,203 79,180 76,151 117,426 363,960
 
Cost of merchandise sold - retail 46,456 42,339 43,267 55,406 187,468
Cost of merchandise sold - commercial 1,101 1,235 558 767 3,661
Cost of merchandise sold - int'l franchising   -     -     -     -     -  
Total cost of merchandise sold ($) 47,557 43,574 43,825 56,173 191,129
Total cost of merchandise sold (%) 1 52.1 % 55.0 % 57.6 % 47.8% 52.5 %
 
Selling, general and administrative 39,228 35,780 36,196 47,633 158,837
Interest expense/(income)   (6 )   (10 )   7     33     24  
Income/(loss) before income taxes 4,424 (164 ) (3,877 ) 13,587 13,970
Income/(loss) before income taxes (%) 1 4.9 % (0.2 )% (5.1 )% 11.6% 3.8 %
 
Retail gross margin ($) 2 42,287 34,044 31,174 60,072 167,577
Retail gross margin (%) 2 47.7 % 44.6 % 41.9 % 52.0% 47.2 %
 
 
Store count 337 353 351 354 354
 
 
Selected balance sheet information:
Cash $ 30,189 $ 12,236 $ 11,381 $ 21,499 $ 21,499
Inventory $ 55,202 $ 59,368 $ 62,854 $ 58,100 $ 58,100
 
(1)   Selected statement of income data expressed as a percentage of total revenues.
(2) 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.
 

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

Source: Build-A-Bear Workshop, Inc.



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