Build-A-Bear Workshop, Inc. (NYSE:BBW) is a beloved multi-generational brand that has evolved from a mall-based, experiential specialty retailer to a company focused on "adding a little more heart to life." The company's unique interactive retail experience, where guests can create their own stuffed animals, has resonated with consumers for over 27 years.

Financials

In fiscal 2023, Build-A-Bear reported annual net income of $52,805,000 and annual revenue of $486,114,000. The company generated annual operating cash flow of $64,310,000 and annual free cash flow of $46,015,000. These strong financial results reflect the company's strategic initiatives to profitably leverage the power of the Build-A-Bear brand.

For the first quarter of fiscal 2024, Build-A-Bear reported revenue of $114,730,000, a decrease of 4.4% compared to the same period in the prior year. Net retail sales decreased 3.8%, primarily driven by an 11.3% decline in web demand, as well as the expected negative timing due to a calendar shift and small declines in both traffic and dollars per transaction. Commercial revenue, which primarily represents wholesale sales to partner operators, and international franchise revenue were down 13.7% versus the prior year due to the timing of product shipments.

Despite the revenue decline, Build-A-Bear delivered pre-tax income of $15,029,000 for the first quarter, representing a 13.1% pre-tax margin. This reflects the company's higher level of profitability, which has been driven by the systematic execution of its strategic initiatives over the past several years.

Business Overview

Build-A-Bear's strategic initiatives are centered around three key areas: the global expansion of its unique experience locations, the acceleration of a comprehensive digital transformation, and the continued leveraging of the Build-A-Bear brand to drive incremental profitable growth.

Global Expansion

Regarding the global expansion of its experience locations, Build-A-Bear opened 5 new partner-operated stores in the first quarter, including 2 in Italy, 2 in the U.S. with the Girl Scouts, and 1 in Colombia. The company remains on track to open at least 50 net new experience locations through its three business models (corporately-operated, partner-operated, and franchised) in fiscal 2024.

Digital Transformation

The company's digital transformation efforts are focused on elevating business efficiency, integrating customer communications to acquire new customers and increase purchase occasions, and expanding its total addressable market by reaching beyond its core kid base to continue acquiring new tween, teen, and adult consumers. While the transition has been disruptive, including impacts to web demand, Build-A-Bear expects these steps to unlock the combined power of e-commerce, e-mail, social media, loyalty, and traditional marketing through a unified vision.

Brand Leveraging

To leverage the Build-A-Bear brand and drive incremental profitable growth, the company has introduced new initiatives, such as the exclusive multifaceted collaboration with the movie "IF" and the comprehensive new brand campaign "The Stuff You Love." These efforts are designed to further expand the appeal of Build-A-Bear while simultaneously connecting multiple generations to a universal message.

Outlook

Despite the challenges faced in the first quarter, Build-A-Bear is reiterating its fiscal 2024 guidance. The company expects total revenue to grow on a mid-single-digit basis, partially driven by the addition of at least 50 net new experience locations, with the majority coming through partner-operated expansion. Pre-tax income is expected to grow in the mid-single-digit range on a full-year basis, reflecting ongoing wage and inflationary pressures, increased depreciation expense, and freight costs.

Geographic and Segment Breakdown

Geographically, Build-A-Bear's revenue is primarily generated in North America, which accounted for 86.7% of total revenue in the first quarter of fiscal 2024. Europe contributed 12.6% of revenue, while other regions, including international franchising, made up the remaining 0.7%.

In terms of revenue breakdown, the direct-to-consumer segment, which includes corporately-managed retail stores and e-commerce, represented 94.0% of consolidated revenue in the first quarter. The commercial segment, which includes licensing and wholesale activities, contributed 5.2% of revenue, while the international franchising segment accounted for 0.8% of revenue.

Liquidity

Build-A-Bear's balance sheet remains strong, with a cash balance of $38,233,000 as of May 4, 2024. The company has no outstanding borrowings under its $25,000,000 revolving credit facility. Inventory at the end of the first quarter was $64,024,000, a decrease of 3.7% compared to the same period last year.

The company's financial ratios demonstrate its financial health. As of May 4, 2024, Build-A-Bear had a current ratio of 1.57, a quick ratio of 0.76, and a cash ratio of 0.49. The company's debt ratio was 0.31, indicating a low level of leverage.

Conclusion

Build-A-Bear Workshop, Inc. is a beloved brand that has navigated challenges in the first quarter of fiscal 2024 while continuing to execute on its strategic initiatives. The company's focus on global expansion, digital transformation, and leveraging its brand strength positions it for long-term profitable growth. With a strong balance sheet and financial ratios, Build-A-Bear is well-equipped to weather the current economic environment and capitalize on the power of its multi-generational brand.