Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Build-A-Bear Workshop Inc (BBW, Financial) reported the best second quarter in its history with revenues of nearly $112 million, an increase of 2.5%, and pretax income of over $11 million, representing growth of over 10%.
- The company has successfully expanded its consumer base beyond kids, with teens and adults now representing approximately 40% of total retail sales.
- BBW has opened nearly 90 net new locations over the past two years, with plans to open at least 50 new experience locations in fiscal 2024, expanding its global footprint to over 20 countries.
- The company has maintained strong cash flow and no borrowings, allowing it to invest in future growth and return capital to shareholders through share repurchases and quarterly dividends.
- BBW's omnichannel strategy is showing positive results, with improvements in web traffic and organic search results, contributing to a double-digit increase in web demand in the third quarter to date.
Negative Points
- Web demand was significantly down by 28.2% in the second quarter, impacting overall sales despite strong in-store performance.
- The company faced challenges with ongoing systems enhancements and product launch timing, which affected web demand results.
- There are uncertainties related to external factors such as election year dynamics and economic conditions, which could impact consumer behavior and overall performance.
- Supply chain issues, including logistics and shipping delays, continue to pose challenges, particularly for seasonal and licensed products.
- Despite strong performance, the company acknowledges the need for further work to fully integrate its omnichannel model and optimize digital transformation efforts.
Q & A Highlights
Q: The Mini Beans, a new product at a lower price than the full-size bear, are they more of an add-on or incremental purchase? How is this changing the overall mix of units and prices in stores?
A: (Sharon John, CEO) The Mini Beans have been a labor of love for us. They often drive add-on purchases as people buy Mini Beans of products they already own in larger sizes. This dynamic has led to an increase in overall sales and a slight increase in conversion rates. Strategically, Mini Beans also open up wholesale opportunities as they don't require the make-your-own experience.
Q: Regarding international and licensing opportunities, how should we think about the potential growth and long-term prospects?
A: (Vojin Todorovic, CFO) International partner-operated locations are a bright spot. We have many inbound requests and are working on expanding these opportunities. We believe we could have as many stores outside the U.S. as inside, leaning towards partner-operated and franchise models.
Q: The back half guidance suggests much better trends than the first half. What are the risks and expectations for the holiday season?
A: (Vojin Todorovic, CFO) Our guidance hasn't changed. We expect growth from new store openings and strong commercial business. Product launches and timing shifts also contribute to our confidence. External factors like the election year could impact, but we feel good about our controllable aspects.
Q: Web demand was down 28% in Q2 but is up double digits in Q3. Can you clarify this improvement?
A: (Sharon John, CEO) The improvement is due to better SEO strategies, product timing shifts, and successful product launches like the Halloween collection. These factors have significantly driven web demand in Q3.
Q: Can you discuss the cadence of new store growth in Q3 versus Q4 and the geographic breakdown of new store growth in Q2?
A: (Vojin Todorovic, CFO) We aim to open new stores as early as possible to maximize holiday season opportunities. Growth will be a mix of partner-operated and owned locations, both domestically and internationally. We opened 17 new stores in Q2, with a focus on key tourist areas.
Q: How is the supply chain set up to replenish seasonal and holiday items quickly?
A: (Sharon John, CEO) Seasonal items are more challenging to replenish quickly, but we work hard to predict demand based on history. We increased inventory and product breadth for Halloween, and we have a flow of products coming in phases. Our core business of evergreen items helps manage supply chain challenges effectively.
Q: Is there an opportunity to accelerate reinvestment in the business through more capital expenditures or acquisitions?
A: (Vojin Todorovic, CFO) We are always looking for ways to optimize and support growth. We are expanding globally through an asset-light model and opening new stores in key markets. We are open to acquisitions if they offer strong ROI and align with our strategic goals.
Q: What is the track record with acquisitions, and is there an opportunity for larger acquisitions?
A: (Sharon John, CEO) We have an open mind to the right acquisitions that are additive or synergistic. The largest acquisition was the UK stores, which we continue to operate successfully. We consider acquisitions that can accelerate proven strategies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
