Build-A-Bear Workshop, Inc. Reports Fiscal 2008 Second Quarter Results

  • European operations deliver sales increase of 39% to $15.3 million and a loss of $1.0 million in second quarter 2008 compared to a loss of $1.7 million in second quarter 2007.


  • Company repurchased 520,000 shares for $4.8 million in the 2008 second quarter.

ST. LOUIS--(BUSINESS WIRE)--July 24, 2008--Build-A-Bear Workshop, Inc. (NYSE: BBW), an interactive entertainment retailer of customized stuffed animals, today reported results for the 2008 second quarter. Fiscal 2008 second quarter (13 weeks ended June 28, 2008) total revenue was $94.7 million, a decline of 6% compared to $100.4 million in the fiscal 2007 second quarter (13 weeks ended June 30, 2007).

The second quarter net loss was $4.8 million, or a loss of $0.25 per diluted share. In the fiscal 2007 second quarter, the Company reported net income of $1.6 million, or $0.08 per diluted share.

"The slowdown in consumer spending is having a significant impact on our current business," said Maxine Clark, Build-A-Bear Workshop chairman and chief executive bear. "In response to this environment, we are carefully allocating capital and managing cash, while aggressively reducing expenses. Foremost, our goal is to improve our sales trend while selectively investing in our unique brand for long-term growth.

"While we will not provide specific earnings guidance for 2008, based upon our current business assumptions, we believe that our 2008 earnings will meet the average of current analysts' estimates for earnings of $0.68 per diluted share. Our outlook for the balance of the year reflects the current positive trends in our European operations and the enthusiastic Guest response to our virtual world Web site buildabearville.com(TM), as well as continued weakness in U.S. consumer spending.

"Looking to 2009, our capital spending plan is for a significant reduction in new store openings -- six stores compared to 25 stores this year. This lower store opening plan and the associated lower capital spending position us to maintain our strong balance sheet and financial flexibility, while continuing to make long-term investments in our brand and returning value to shareholders through the repurchase of our stock," Clark concluded.

Fiscal 2008 Second Quarter Financial Results

Fiscal 2008 second quarter total revenue includes net retail sales of $93.5 million, a decline of $5.6 million or 5.7% compared to $99.1 million in last year's second quarter. The net retail sales decline was driven by a decrease in comparable store sales in North America partially offset by new stores opened during the past twelve months and an increase in comparable store sales in European operations. Total revenue also includes revenue from international franchise fees and third-party licensing.

Second quarter 2008 consolidated comparable store sales (North American and European operations) declined 17.9%. Comparable stores sales in North America declined 20.5% compared to a decline of 9.4% in the 2007 second quarter. Comparable stores sales in Europe increased 2.2%.

Net retail sales from European operations totaled $15.3 million in the 2008 second quarter, compared to $11.0 million in the 2007 second quarter, an increase of 39%. The loss from European operations totaled $1.0 million in the 2008 second quarter, compared to a loss of $1.7 million in the 2007 second quarter.

Second quarter 2008 was negatively affected when compared to the 2007 second quarter because of the shift in the Easter holiday and associated school vacations, an important selling time for the Company. In 2007, Easter sales were included in the second quarter; in 2008 Easter sales were included in the first quarter.

The fiscal 2008 second quarter net loss of $4.8 million includes stock-based compensation expense of $0.9 million ($0.6 million net of tax or $0.03 per diluted share). The net income decline compared to the 2007 second quarter was driven primarily by reduced sales leverage on fixed costs and expenses and lower interest income, partially offset by lower store preopening expenses. Fiscal 2007 second quarter net income of $1.6 million includes stock-based compensation expense of $0.8 million ($0.5 million net of tax or $0.02 per diluted share).

During the 2008 second quarter, the Company opened four new stores in North America, as planned, compared with opening 15 new stores during the 2007 second quarter. In Europe, the Company opened one new store -- in Liverpool, England -- compared with opening one new store during the 2007 second quarter. Build-A-Bear Workshop Company-owned stores at the end of the second quarter totaled 330 -- 278 in North America and 52 in Europe.

For the full-year 2008 the Company plans to open 25 new company-owned stores - 20 new stores in North America (versus 39 new stores in 2007) and five new stores in Europe (opening 11 new stores in 2007).

During the fiscal 2008 second quarter, the Company repurchased and retired 520,215 shares of common stock for $4.8 million. At the end of the 2008 second quarter the Company's consolidated cash position was $15.6 million.

Year-to-Date Financial Results

Total revenue for the first six months of fiscal 2008 (26 weeks ended June 28, 2008) was $218.5 million, compared to $217.2 million in the first six months of fiscal 2007 (26 weeks ended June 30, 2007). Total revenue for the first six months of fiscal 2008 includes net retail sales of $215.3 million, compared to $215.0 million in last year's first six months. Sales from European operations totaled $31.6 million in the first six months of fiscal 2008, compared to $21.8 million in the first six months of fiscal 2007, an increase of $9.8 million or 45.0%.

Consolidated comparable store sales (North American and European operations) for the first six months of fiscal 2008 declined 13.9%. Comparable store sales in North America declined 16.5% compared to a decline of 8.1% in the 2007 first six months. Comparable store sales in Europe increased 8.3% in the first six months of fiscal 2008. During the 2008 first quarter the Company began reporting comparable store sales for European operations for the first time.

Net income for the first six months of fiscal 2008 was $1.6 million, or $0.08 per diluted share, and included a loss of $1.1 million from European operations and stock-based compensation expense of $1.1 million. Net income for the first six months of fiscal 2007 was $9.7 million, or $0.47 per diluted share, and included a loss of $3.9 million from European operations and stock-based compensation expense of $0.9 million.

During the first six months of fiscal 2008 the Company repurchased and retired 1,567,515 shares of common stock for $13.4 million.

International Franchising

During the 2008 second quarter international franchisees opened six stores. The Company ended the quarter with 58 international franchise stores located in 14 countries. The Company currently has franchise agreements covering 20 countries and anticipates franchisees will open approximately 14 new stores (net of store closings) in 2008.

Other News

The Company also announced today that its total equity investment in RidemakerZ, LLC, has increased to $7.3 million, funded by a combination of cash and contributed services. RIDEMAKERZ(TM) is an early-stage company developing an interactive retail concept that allows children and families to build and customize their own personalized cars. In addition to the current equity investment in RIDEMAKERZ, the Company has an agreement to provide operating and advisory services to RIDEMAKERZ in exchange for additional preferred equity ownership.

Outlook

The Company's outlook assumes a continued challenging economic environment and does not include the impact of the Company's share repurchase program.

While not providing specific earnings guidance for fiscal 2008 (53 weeks ending Jan. 3, 2009), the Company believes that its earnings per share for the year will meet the average of current analysts' earnings estimates of $0.68 per diluted share. The Company also noted that fiscal 2008 is a 53 week fiscal year and that the 53rd week falls in the fourth quarter.

For fiscal 2009 (52 weeks ending Jan. 2, 2010), the Company's current outlook includes:

  • Slower new store growth compared to fiscal 2008 - opening six new stores (four stores in North America versus 20 in 2008 and two stores in Europe versus five in 2008).


  • Capital expenditures of approximately $15 million and depreciation and amortization of approximately $35 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. EDT today. The broadcast may be accessed at our investor relations Web site, http://IR.buildabear.com. The call is expected to conclude by 10 a.m.

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 EDT today until midnight on August 7, 2008. The telephone replay is available by calling (617) 801-6888. The access code is 71126598.

About Build-A-Bear Workshop, Inc.

Build-A-Bear Workshop, Inc. is the only global company that offers an interactive make-your-own stuffed animal retail-entertainment experience. The Company currently operates more than 375 Build-A-Bear Workshop stores worldwide, including company-owned stores in the U.S., Puerto Rico, Canada, the United Kingdom, Ireland and France, and franchise stores in Europe, Asia, Australia and Africa. Founded in St. Louis in 1997, Build-A-Bear Workshop is the leader in interactive retail. Brands include make-your-own Major League Baseball(R) mascot in-stadium locations, Build-A-Dino(R) stores and friends 2B made(R) doll locations. In December 2007, Build-A-Bear Workshop extended its in-store interactive experience online with the launch of its virtual world at www.buildabearville.com. Build-A-Bear Workshop (NYSE: BBW) posted total revenue of $474 million in fiscal 2007. For more information, call 888.560.BEAR (2327) or visit the Company's award-winning Web sites at www.buildabear.com and www.friends2bmade.com.

Forward-Looking Statements

This press release contains "forward-looking statements" (within the meaning of the federal securities laws) which represent Build-A-Bear Workshop expectations or beliefs with respect to future events. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. Those factors include, without limitation: we may be unable to generate interest in and demand for our interactive retail experience, or to identify and respond to consumer preferences in a timely fashion; our marketing and on-line initiatives may not be effective in generating sufficient levels of brand awareness and guest traffic; we may be unable to generate sufficient comparable store sales; we may be unable to open new stores or may be unable to effectively manage our growth; we may be unable to effectively manage our international franchises or laws relating to those franchises may change; customer traffic may continue to decrease in the shopping malls where we are located, on which we depend to attract guests to our stores; general economic conditions may continue to deteriorate, which could lead to disproportionately reduced consumer demand for our products, which represent relatively discretionary spending; high petroleum products prices could continue to increase our inventory transportation costs and adversely affect our profitability; we may be unable to repurchase shares at all or at the times or in the amounts we currently anticipate or the results of the share repurchase program may not be as beneficial as we currently anticipate; we may be unable to realize some of the expected benefits of the acquisition of Amsbra and Bear Factory, and the inclusion of France as a Company-owned country; we may lose key personnel, be unable to hire qualified additional personnel, or experience turnover of our management team; the ability of our principal vendors to deliver merchandise may be disrupted; the availability and costs of our products could be adversely affected by risks associated with international manufacturing and trade; we may be unable to realize the anticipated benefits from our company-owned distribution center or our third-party distribution center providers may perform poorly; fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline; we may be unable to renew or replace our store leases, or enter into leases for new stores on favorable terms or in favorable locations, or may violate the terms of our current leases; our market share could be adversely affected by a significant, or increased, number of competitors; we may suffer negative publicity or be sued due to violations of labor laws or unethical practices by manufacturers of our merchandise; our products could become subject to recalls or product liability claims that could adversely impact our financial performance and harm our reputation among consumers; we may improperly obtain or be unable to protect information from our guests in violation of privacy or security laws or expectations; we may fail to renew, register or otherwise protect our trademarks or other intellectual property; and we may have disputes with, or be sued by, third parties for infringement or misappropriation of their proprietary rights. These and other applicable risks, cautionary statements and factors that could cause actual results to differ from the Company's forward-looking statements are included in the Company's filings with the SEC, including as described in the Company's annual report on Form 10-K for the fiscal year ended December 29, 2007. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


             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
                       June 28,   % of Total    June 30,   % of Total
                         2008     Revenues(1)     2007     Revenues(1)
                     ------------ ----------- ------------ -----------
Revenues:
   Net retail sales  $    93,468        98.7  $    99,102        98.7
   Franchise fees            824         0.9          677         0.7
   Licensing revenue         403         0.4          604         0.6
                     ------------ ----------- ------------ -----------
         Total
          revenues        94,695       100.0      100,383       100.0
                     ------------ ----------- ------------ -----------
Costs and expenses:
   Cost of
    merchandise sold      59,430        63.6       57,682        58.2
   Selling, general
    and
    administrative        42,174        44.5       39,250        39.1
   Store preopening          622         0.7        1,369         1.4
   Interest expense
    (income), net           (179)       (0.2)        (356)       (0.4)
                     ------------ ----------- ------------ -----------
         Total costs
          and
          expenses       102,047       107.8       97,945        97.6
                     ------------ ----------- ------------ -----------
         Income
          (loss)
          before
          income
          taxes           (7,352)       (7.8)       2,438         2.4
Income tax (benefit)
 expense                  (2,561)       (2.7)         846         0.8
                     ------------             ------------ -----------
         Net income
          (loss)     $    (4,791)       (5.1) $     1,592         1.6
                     ============             ============

Earnings (loss) per
 common share:
   Basic             $     (0.25)             $      0.08
                     ============             ============
   Diluted           $     (0.25)             $      0.08
                     ============             ============
Shares used in
 computing common
 per share amounts:
   Basic              18,935,410               20,222,624
   Diluted            18,935,410               20,427,858

(1) Selected statement of operations data expressed as a percentage of
 total revenues, except cost of merchandise sold which is expressed as
 a percentage of net retail sales. Percentages will not total due to
 cost of merchandise sold being expressed as a percentage of net
 retail sales and 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
                         June 28,   % of Total   June 30,   % of Total
                           2008     Revenue(1)     2007     Revenue(1)
                       ------------ ---------- ------------ ----------
Revenues:
   Net retail sales    $   215,322       98.5  $   214,985       99.0
   Franchise fees            2,073        0.9        1,372        0.6
   Licensing revenue         1,107        0.5          840        0.4
                       ------------ ---------- ------------ ----------
         Total
          revenues         218,502      100.0      217,197      100.0
                       ------------ ---------- ------------ ----------
Costs and expenses:
   Cost of merchandise
    sold                   128,169       59.5      119,928       55.8
   Selling, general
    and administrative      87,001       39.8       80,688       37.1
   Store preopening          1,175        0.5        2,057        0.9
   Interest expense
    (income), net             (639)      (0.3)        (901)      (0.4)
                       ------------ ---------- ------------ ----------
         Total costs
          and expenses     215,706       98.7      201,772       92.9
                       ------------ ---------- ------------ ----------
         Income before
          income taxes       2,796        1.3       15,425        7.1
Income tax expense           1,194        0.5        5,768        2.7
                       ------------ ---------- ------------ ----------
         Net income    $     1,602        0.7  $     9,657        4.4
                       ============            ============

Earnings per common
 share:
   Basic               $      0.08             $      0.48
                       ============            ============
   Diluted             $      0.08             $      0.47
                       ============            ============
Shares used in
 computing common per
 share amounts:
   Basic                19,546,596              20,252,222
   Diluted              19,637,956              20,476,603

(1) Selected statement of operations data expressed as a percentage of
 total revenues, except cost of merchandise sold which is expressed as
 a percentage of net retail sales. Percentages will not total due to
 cost of merchandise sold being expressed as a percentage of net
 retail sales and rounding.

             BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
           Unaudited Condensed Consolidated Balance Sheets
       (dollars in thousands, except share and per share data)

                                                 June 28, December 29,
                                                   2008       2007
                                                 -------- ------------
                                ASSETS
Current assets:
   Cash and cash equivalents                     $ 15,625 $     66,261
   Inventories                                     46,763       48,638
   Receivables                                      6,179        7,068
   Prepaid expenses and other current assets       19,845       14,624
   Deferred tax assets                              4,130        3,606
                                                 -------- ------------
         Total current assets                      92,542      140,197

Property and equipment, net                       138,333      139,841
Goodwill                                           42,683       42,840
Other intangible assets, net                        4,190        4,016
Investment in affiliate                             7,267        4,307
Other assets, net                                   8,853        8,330
                                                 -------- ------------
Total Assets                                     $293,868 $    339,531
                                                 ======== ============


                 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                              $ 23,613 $     45,044
   Accrued expenses                                 7,284       11,788
   Gift cards and customer deposits                22,925       34,567
   Deferred revenue                                 9,239        8,708
                                                 -------- ------------
         Total current liabilities                 63,061      100,107
                                                 -------- ------------

Deferred franchise revenue                          2,094        2,511
Deferred rent                                      44,063       41,697
Other liabilities                                   1,215        1,608


Stockholders' equity:
   Common stock, par value $0.01 per share            195          207
   Additional paid-in capital                      75,930       88,388
   Accumulated other comprehensive income           7,009        6,314
   Retained earnings                              100,301       98,699
                                                 -------- ------------
         Total stockholders' equity               183,435      193,608
                                                 -------- ------------
Total Liabilities and Stockholders' Equity       $293,868 $    339,531
                                                 ======== ============

             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
                             June 28,  June 30,   June 28,   June 30,
                               2008      2007       2008       2007
                             --------- --------- ---------- ----------

Other financial data:
   Gross margin ($) (1)      $34,038   $41,420   $ 87,153   $ 95,057
   Gross margin (%) (1)         36.4%     41.8%      40.5%      44.2%
   Capital expenditures, net
    (2)                      $ 9,003   $11,765   $ 14,715   $ 17,140
   Depreciation and
    amortization             $ 7,241   $ 6,365   $ 14,243   $ 12,625
   Sales over the Internet   $ 1,861   $ 2,040   $  4,869   $  5,286

Store data (3):
   Number of company-owned
    stores at end of period
      North America                                   278        252
      Europe                                           52         41
                                                 ---------- ----------
         Total stores                                 330        293

   Number of franchised
    stores at end of period                            58         42

   Company-owned store
    square footage at end of
    period
      North America                               824,574    761,633
      Europe (4)                                   74,796     61,243
                                                 ---------- ----------
         Total square
          footage                                 899,370    822,876

   Comparable store sales
    change (%) (5)
      North America            (20.5)%    (9.4)%    (16.5)%     (8.1)%
      Europe                     2.2%       --        8.3%        --
                             --------- --------- ---------- ----------
         Consolidated          (17.9)%    (9.4)%    (13.9)%     (8.1)%

(1) Gross margin represents net retail sales less cost of merchandise
 sold. Gross margin percentage represents gross margin divided by net
 retail sales.
(2) Capital expenditures, net represents cash paid for property,
 equipment, other assets and other intangible assets.
(3) Excludes our webstore and seasonal and event-based locations.
 North American stores are located in the United States, Canada and
 Puerto Rico. In Europe, stores are located in the United Kingdom,
 Ireland and France.
(4) Square footage for stores located in Europe is estimated selling
 square footage.
(5) Comparable store sales percentage changes are based on net retail
 sales and stores are considered comparable beginning in their
 thirteenth full month of operation. Fiscal 2008 first quarter is the
 first quarter that our European operations have met the criteria for
 inclusion in our comparable store calculation. As such, there is no
 comparable data for 2007 for Europe.

CONTACT: Build-A-Bear Workshop, Inc.
Investors:
Molly Salky, 314-423-8000, ext. 5353
or
Media:
Jill Saunders, 314-423-8000, ext. 5293

SOURCE: Build-A-Bear Workshop, Inc.