Build-A-Bear Workshop, Inc. Reports Consolidated Comparable Sales and Profit in Line with Guidance with First Quarter Fiscal 2017 Results
- First quarter consolidated comparable sales decline 8.1%, in line with guidance, reflecting holiday shifts and following a 2.2% increase in the fiscal 2016 first quarter
- First quarter results include GAAP pre-tax income of $4.6 million and net income per diluted share of $0.17
- Consolidated comparable sales increase mid-single digits for the nine-week period from February 19 to April 22, 2017, which accounts for the Easter shift
ST. LOUIS, 2017-Apr-29 — /EPR Retail News/ — Build-A-Bear Workshop, Inc. (NYSE:BBW) today (Apr. 27, 2017) reported results for the first quarter of fiscal 2017, the 13 weeks ended April 1, 2017. The Company noted sales performance was impacted by the shift in timing of both Valentine’s Day and Easter as well as associated school breaks in the quarter.
First Quarter 2017 Highlights (13 weeks ended April 1, 2017, compared to the 13 weeks ended April 2, 2016):
- Consolidated comparable sales declined 8.1% following a 2.2% increase in the fiscal 2016 first quarter. The fiscal 2017 first quarter included a 9.0% decrease in North America, following a 3.0% increase in the fiscal 2016 first quarter and a 3.3% decrease in Europe, following a decrease of 1.8% in the fiscal 2016 first quarter. Consolidated comparable e-commerce sales decreased 5.6%, following a 1.0% increase in the fiscal 2016 first quarter;
- Pre-tax income was $4.6 million, including $0.2 million in adjustments, compared to pre-tax income of $5.3 million, including $0.3 million in adjustments, in the fiscal 2016 first quarter. (See Reconciliation of Net Income to Adjusted Net Income);
- Income tax expense was $1.8 million with an effective tax rate of 39.8%, compared to income tax expense of $1.8 million with an effective tax rate of 33.3% in the fiscal 2016 first quarter;
- Net income was $2.8 million, or $0.17 per diluted share, compared to net income of $3.5 million, or $0.22 per diluted share, in the fiscal 2016 first quarter; and
- Adjusted net income was $2.7 million, or $0.17 per diluted share, compared to adjusted net income of $3.0 million, or $0.19 per diluted share, in the fiscal 2016 first quarter. (See Reconciliation of Net Income to Adjusted Net Income.)
Sharon Price John, Build-A-Bear Workshop President and Chief Executive Officer, commented, “In the first quarter, sales and profit levels were in line with previously stated expectations and we made progress in evolving our strategies and building on the foundation that has been laid over the past few years to fuel future growth. As expected, sales were negatively impacted by shifts in both Valentine’s Day and Easter as well as the associated school break periods.
“As adjustments were made to our marketing and media programs following a disappointing fourth quarter, we saw an improvement in overall traffic and sales trends. I am encouraged by the start of the second quarter and believe we are well prepared to capitalize on an exciting lineup of proprietary and licensed properties supported by a robust movie schedule while continuing to evolve and diversify our retail portfolio with a goal of enhancing shareholder value throughout fiscal 2017,” concluded Ms. John.
Additional Fiscal First Quarter 2017 Details (13 weeks ended April 1, 2017, compared to the 13 weeks ended April 2, 2016):
- Total revenues were $90.6 million compared to $95.0 million in the fiscal 2016 first quarter. The decline in total revenues reflects a decrease in consolidated comparable sales and unfavorable currency exchange rates partially offset by increases in sales from new retail locations and commercial revenue from the Company’s strategic wholesale and licensing initiatives;
- Consolidated net retail sales were $88.6 million compared to $94.1 million in the fiscal 2016 first quarter;
- Retail gross margin declined 130 basis points to 47.1% compared to 48.4% in the fiscal 2016 first quarter, primarily driven by the deleveraging of fixed occupancy expenses; and
- Selling, general and administrative expense decreased $2.0 million to $37.6 million, or 41.5% of total revenues, compared to 41.8% of total revenues in the fiscal 2016 first quarter.
Impact of Foreign Currency:
The significant movement in the British pound sterling relative to the U.S. dollar as a result of the United Kingdom’s referendum vote in June 2016 continues to negatively affect the Company’s revenues and pre-tax income with most of the impact resulting from higher retail cost of merchandise sold as most inventory is purchased in U.S. dollars. In the 2017 fiscal first quarter, the Company estimates this impact on revenues and pre-tax income to be approximately $2.0 million and $0.3 million, respectively. This is inclusive of the transactional impact of changes in foreign exchange rates on the remeasurement of the Company’s balance sheets included in the Reconciliation of Net Income to Adjusted Net Income.
During the first quarter, the Company opened 1 new store, closed 11 locations and completed 4 store remodels. As of April 1, 2017, the Company operated 336 company-owned stores, including 61 in its new Discovery format, with 275 locations in North America, 60 in Europe and 1 in China. The Company’s international franchisees ended the period with 87 stores in 11 countries.
The Company ended the fiscal 2017 first quarter with cash and cash equivalents totaling $35.6 million and no borrowings under its revolving credit facility. Total inventory at quarter-end was $53.3 million compared to $54.0 million in the prior year, a decrease of 1.2%. In the fiscal 2017 first quarter, capital expenditures were $2.3 million, and depreciation and amortization was $3.9 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. 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 continues to evolve its aged store fleet into new Discovery format stores, finishing the first quarter with 61 locations. Overall, these locations continue to perform ahead of heritage locations. The Company remains on track to have approximately 20 additional locations remodeled into this format in 2017 as it leverages natural lease events. Importantly, ongoing value engineering efforts have resulted in a significant reduction in capital requirements needed to open or remodel a store.
The Company continues to make progress to bring Build-A-Bear to places families go for entertainment, including tourist locations, seasonal event settings such as the successful relationship with Gaylord Hotels, pop-up shops at AMC Theatres and a rapidly expanding wholesale relationship with Carnival Cruise Line. Separately, the Company’s new retail model referred to as “concourse shops” requires less capital, has shorter-term leases and, at approximately 200 square feet, offers a solution for a wide range of settings. The Company expects to have 20 to 25 concourse shops open by the end of the fiscal year.
In addition, the Company is on track to upgrade its web platform ahead of the fourth quarter holiday season. The reinvention of the website platform and e-commerce systems is expected to enable Guests to experience Build-A-Bear online in new ways.
International franchisees ended the first quarter with 87 locations in 11 countries, including 7 Discovery stores, which delivered positive results. The Company continues to expect existing franchisees to open approximately 10 stores and to expand into additional countries in fiscal 2017.
The Company is focused on meeting the needs of its core consumer base, boys and girls ages 3 to 12, while systematically building secondary consumer segments, including the teen-plus affinity and gift-giver consumers. Accordingly, the Company plans to balance its offering of core products with a comprehensive program of key licensed properties including products with tie-ins to major movie releases throughout 2017 while continuing to develop and expand offerings of its successful owned intellectual property stories, such as its Promise Pets, Honey Girls and the holiday-specific Merry Mission collections.
The Company also plans to continue to build outbound licensing programs by leveraging the power of the Build-A-Bear brand, as well as other owned intellectual properties. New license agreements have been added in categories ranging from non-plush toys to slippers and electronics, with updates and launches planned throughout 2017.
BRAND and EXPERIENCE Amplification
In addition to creating sharable, emotional content that more authentically communicates the heart of the brand, the Company is making adjustments to marketing programs that create synergy across channels. To that end, in the first quarter, the company shifted its media to better reach moms and kids while leveraging the competitive advantage of its entertainment retail experience by adding in-store events such as story readings, movie release celebrations and appearances by its iconic mascots. The Company plans to continue to develop entertainment content, including mobile apps, music videos and other opportunities that increase engagement, and are designed to improve efficiency, drive traffic and lead to profitable sales growth.
LONG-TERM PROFITABILITY Improvement
The Company is focused on improving profitability by driving revenue growth through the execution of its stated strategies, as well as disciplined expense management and ongoing efforts in process and systems upgrades. In response to business shifts that occurred at the end of 2016, adjustments have already been implemented in core operations, including marketing and media strategies, in order to regain a positive sales position.
As Build-A-Bear enters its 20th year in business and continues to evolve into a multi-generational, multi-dimensional branded company, the plans and actions that have been implemented since the start of the turnaround in 2013 are expected to provide the foundation to execute the Company’s strategies and achieve its goal of sustained profitable growth.
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 April 27, 2017. The telephone replay is available by calling (844)-512-2921. The access code is 13659727.
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 $364.2 million in fiscal 2016. For more information, visit the Investor Relations section of buildabear.com.
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Source: Build-A-Bear Workshop, Inc.