Hudson Pacific Properties Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 25, 2023

There are 5 speakers on the call.

Operator

Greetings, and welcome to the Build A Bear Workshop First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Gary Shneiro, Vice President of Investor Relations and Corporate Finance.

Operator

Thank you, sir. You may begin.

Speaker 1

Good morning, And thank you for joining us. I'm excited to speak to you on my first earnings call as the Vice President of Investor Relations and Corporate Finance for Build A Bear. With me today are Sharon Pricejohn, CEO and Voin Sidorovich, CFO. For today's call, Sharon will begin with a discussion of our Q1 and update the progress we have made on our key priorities. After, Voin will review the financials in more detail and provide our guidance.

Speaker 1

We We will then open the call to take your questions. We ask that you limit your questions to one question and one follow-up. This way we can get to everyone's questions during this 1 hour call. Feel free to re queue if you have further questions. Members of the media who may be on our call today should contact us after this conference call with your questions.

Speaker 1

Please note, the call is being recorded and broadcast live via the Internet. The earnings release is available on the Investor Relations portion of our corporate website. A replay of both our call and webcast will be available later today on the IR site. I will remind everyone that forward looking statements are inherently Subject to risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those set forth in the Risk Factors section in the company's Annual Report on Form 10 ks.

Speaker 1

We undertake no obligation to revise any forward looking statements unless required by law. Also during this call, we may discuss non GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items, which management believes Can be useful in evaluating the company's performance. The presentation of non GAAP financial measures should not be considered in isolation or a substitute for results

Speaker 2

Thank you, Gary. Good morning and thank you for joining us for Build A Bear's Q1 2023 earnings call. I'm pleased to share that the year has gotten off to a good start. Following our record setting results for both fiscal full year 202120 22. We have again posted record results for the Q1 of 2023 and we are reiterating our annual guidance.

Speaker 2

Before I provide more details regarding our Q1 financial results, I'd like to reflect on some of the reasons why Build A Bear Workshop has And continues to resonate with guests of all ages, has greater than 95% aided brand awareness and more than 90% of polled moms agree That Build A Bear is a fun experience for a child. 1st, Build A Bear's mission is to add a little more heart to life. And over the past quarter century, We have delivered on that mission in a variety of ways, especially through our well known store experience. These interactive engagements enable our guests to tailor their chosen furry friends with outfits, accessories and sounds, As well as name their new friend and receive a birth certificate. Most importantly, during the stuffing process, they bond with their new furry friend by giving it a during our memorable heart ceremony.

Speaker 2

This memory making experience often sets the stage for a lifetime relationship with our brand That includes additional visits, social media posts and membership in our loyalty program. As an example, I'd like to Quickly share some recent feedback that is indicative of the relationships we create with our valued guests like this email. We took our twin nieces to Build A Bear today to celebrate their birthdays. I just wanted to relay how much fun they had, thanks to the wonderful and caring staff. Watching Lydia help them stuff and bring their bears to life was such a treat or this Facebook post from just a couple of weeks ago.

Speaker 2

Kudos to the staff for being so sweet and patient with Milly. It was our first time at the store and creating her own furry friend from beginning to end with such an experience to watch, And she loved every minute of it. The Build A Bear heart ceremony was awesome. Each day, we work hard to ensure that our guests' Unique Build A Bear experience is at the core of our business model, and we take pride in the fact that our nearly five 100 corporately managed, partner managed and international franchise locations have enabled our guests through their creativity and self expression To make these powerful one to one memorable moments, with more than 225,000,000 furry friends made over the past 25 years, many of our guests have grown up with our brand and they now often wish for their own children to experience the magic Additionally, in growing numbers, our older consumers also come back to Build A Bear Workshop, Our go to our e commerce site to not only create additional moments for themselves, but to create gifts for others. Between our stores and our website, our guests of all ages are creating wonderful, joyful With teens and adults now representing 40% of our sales, We are a brand that multiple generations love and trust.

Speaker 2

Now with that backdrop, 1st quarter total revenues topped last year's previous record. We delivered growth across all geographies in our direct To Consumer segment, we posted growth in our Commercial segment, which includes our asset light partner operated model, adding 8 stores over the past year, And we posted growth in our International Franchising segment. Our first quarter earnings per share of $0.98 represented the highest for our Q1 in Build A Bear's history. Recall our direct to consumer segment is made up of our corporately managed stores and our e commerce site. Overall DTC revenue increased for the quarter driven by an increase in revenues at our stores, partially offset by a decline in our web demand.

Speaker 2

We experienced greater volatility in web demand than expected, largely due to continued testing and optimization of the new website And product launch shift. Web demand is generally more affected by product launches and calendar timing than our workshop, Where an estimated 80% of store trips are planned, digital demand has rebounded with sales increasing at nearly double digit rates. Thus far for the Q2 driven by recent product launches, including Hello Kitty, which will be followed by more launches associated with products tied to key feature Also, while we expect web demand to ebb and flow, we are confident in continued e commerce growth and our expectation of positive sales growth across segments this year and our commitment to continue to drive shareholder value. I would also like to highlight our ongoing capital return to shareholders through special dividends and stock repurchases. Over the past 2 years, we've paid 2 special dividends totaling $2.75 per share and we have repurchased 2,100,000 shares.

Speaker 2

We believe this capital return effort along with our strategic initiatives Demonstrates confidence in our future prospects. With record Q1 performance and positive second quarter to date trends, We are reiterating the annual guidance provided earlier this year for total revenues to increase in the range of 5% to 7% Compared to fiscal 2022 with growth in all three of our operating segments and pre tax income growth of 10% to 15%, both of which reflect the added benefit of the 53rd week. We continue to expect accelerating sales trends as the year progresses, driven by the phasing of new product launches and other growth initiatives. This includes 20 to 30 new stores, inclusive of The Kalahali Resorts openings and tourist locations that was announced in a press release this morning as well as new marketing and media introductions, including the Build A Bear documentary and Merry Mission movies later this year. We are particularly excited about these 2 film releases as they represent Build A Bear's Continued expansion into content creation, which includes books through our recently announced relationship with Macmillan Publishing And digital initiatives, which includes the launch of our Roblox Tycoon game that has more than 9,000,000 users.

Speaker 2

Specifically, the documentary entitled A Build A Bear Story is expected to further enhance the brand's iconic Top culture status by exploring the heartfelt journey of Build A Bear's 1st 25 years. Award winning director, Taylor Morton has set out to answer the question, What is it about Build A Bear that resonates with so many people? And the 2nd film slated for release this holiday season It's our first animated feature highlighting GLSEN and the Merry Mission based on our successful CECL collection that was originally launched in 2014. Since its introduction, our Merry Mission product line, which is available only a few weeks each year, Has generated over $100,000,000 in revenue, with our magical snow deer, Glisten, often being the top item for our holiday season. This story centers on the belief in the spirit of Christmas and our heroine, Glesson, who work with Santa, the elf and other reindeer to make Sure.

Speaker 2

There are enough toys for everyone on the night lift. In closing, I would like to announce that Gary Schenaro As recently joined the company as our Vice President of Investor Relations and Corporate Finance. Gary brings over 2 decades of experience analyzing public companies As an equity research analyst and portfolio manager and welcome the opportunity to be a valuable resource for both existing and potential investors. I would also like to thank all the Build A Bear associates and partners for their efforts this quarter as we work together to continue to add a little more heart to life, while focusing on achieving yet another record setting year and continuing to return value to our shareholders. Before I turn the call over to Voin to review our financial results in more detail, I would also like to thank the Acxiom Space Mission We're adding our very own Gigi The Bear to its space crew as its zero gravity indicator for their SpaceX Falcon Rocket.

Speaker 2

With over 500,000,000 PR impressions since the ROCCAT launch this past week, it's one small step for GG, But one giant leap for bear kind. Boim?

Speaker 3

Thanks, Sharon, and good morning, everyone. We are pleased To speak with you today and share our solid start to the year, we achieved best ever results across key financial metrics for the Q1. This performance was highlighted by increased revenue, expansion in gross profit margin and growth in pre tax income, Which combined with share repurchase activity led to a 10% rise in 1st quarter diluted EPS. We attribute our ability to report ongoing positive results in a dynamic environment to the increasing resonance and strength of our brand and the successful execution of our strategy with a business model that delivers strong cash flow. After our planned investment in growth, including retail store expansion, which has benefited from our capital light partner operated retail model, We continue to return capital to our shareholders.

Speaker 3

Year to date, we returned $28,600,000 in cash to shareholders Through dividends and share repurchases, over the past 6 quarters, we have returned $77,000,000 of capital to our shareholders. Turning to a more detailed review of the Q1. Total revenues were $120,100,000 including the negative impact of $1,300,000 of currency exchange as compared to $117,700,000 in the fiscal 2022 Q1. Net retail sales were $112,100,000 compared to $112,900,000 in the fiscal 2022 Q1. Adjusted for the negative currency exchange, Store sales increased while e commerce demand declined in the period.

Speaker 3

Store sales increased across all geographies. Overall for the quarter, sales were driven by an increase in traffic plus pricing, offset by product mix. For our corporately managed stores, year over year comparisons became more challenging in late March April, but have since rebounded in May. Because of the noise in results over the past couple of years from COVID and calendar shifts, when we look at the monthly cadence versus 2019, Monthly comparisons are much more consistent. For e commerce, there was also a bit of noise in the results As web demand was down 19.6% for the quarter, impacted by the timing and expected strength of product launches as compared to last year.

Speaker 3

In fact, as new product launched in Q2, we have returned to double digit positive e commerce demand on a quarter to date basis. Based on this year's product launch schedule compared with last year's, we continue to expect web growth on a full year basis. I would also note that when viewed against Q1 2019, web demand grew nearly 150%. Commercial revenues, which primarily represents wholesale sales to our partner operators And international franchise revenues rose a combined 67% versus the prior year. Gross profit margin was 54.1 percent, an expansion of 160 basis points Compared to last year, driven by lower freight costs as expected, plus leverage of distribution costs.

Speaker 3

SG and A expenses were $45,600,000 or 38 percent of total revenues compared to $43,600,000 or 37 The $2,000,000 increase in SG and A was driven by planned investment in talent marketing to support future growth and to a lesser extent reflect inflation in store labor costs. Higher gross profit dollars more than offset the increase in SG and A and led to pretax income growth of $1,200,000 to $19,400,000 with pretax margin expanding 60 basis points to 16.1 percent of total revenues Compared to pre tax income of $18,200,000 or 15.5 percent of total revenues in the Q1 last year. Income tax expense was $4,700,000 with an effective tax rate of 24.5 percent Compared to income tax expense of $4,000,000 with an effective tax rate of 22% in the fiscal 2022 Q1. As a result, net income was $14,600,000 or $0.09 per diluted share Versus net income of $14,200,000 or $0.89 per diluted share in the fiscal 2022. 1st quarter, which is a 10% increase in EPS year over year and EBITDA Increased to $22,400,000 which is record level for the Q1.

Speaker 3

Turning to the balance sheet. At the quarter end, we had cash and cash equivalents of $32,800,000 Compared to $26,100,000 at the end of the Q1 last year. Our record business performance over the last 12 months drove Strong cash generation and our quarter end cash position reflects the impact of dividend payments and share repurchases as we continue to return capital to our shareholders. Inventory at quarter end was $66,500,000 Declining $10,900,000 or 14.1 percent from the end of the Q1 last year and in line with our expectations. Keep in mind, last year's quarter end inventory was intentionally elevated to avoid potential supply chain disruptions.

Speaker 3

We remain comfortable with the level and composition of our inventory as we begin the Q2. As it relates to our outlook, we are reaffirming our guidance for fiscal 2023. While our fiscal 2023 is a 53 week year and compares to a 52 week year in fiscal 2022, We expect to deliver growth in total revenues and pretax profit versus the prior year, exclusive of the projected benefit of the 53rd week. For reference, the additional week, which will be reflected in our Q4, is estimated to be $7,000,000 in total revenues With approximately 35% flow through to EBITDA. For fiscal 2023, we continue to expect Total revenues to increase in the range of 5% to 7% compared to fiscal 2022, including expansion in all three operating segments.

Speaker 3

Pretax income growth Of 10% to 15% compared to fiscal 2022, surpassing last year's record high. To open 20 to 30 d experienced locations through a combination of partner and corporately operated business models With the majority planned for the second half of the year, capital expenditures in the range of $15,000,000 to $20,000,000 Depreciation and amortization of $13,000,000 to $14,000,000 and tax rate to approximate 25%, excluding discrete items. As we begin the Q2, we recognize that the macro environment remains uncertain. That said, We believe we remain well positioned to achieve fiscal 2023 revenue and pretax income ahead of the record set last year and in line with our guidance. Our guidance considers a variety of factors ranging from anticipated ongoing inflationary pressures to the expected benefit of reduced freight costs.

Speaker 3

Additionally, we note that our outlook assumes no further material changes in the operations of our supply chain, including the ability to receive and ship product On a timely basis, the macroeconomic and geopolitical environment or relevant foreign currency exchange rates. In closing, we are pleased to begin the year with solid performance. We believe our proven track record, The significant growth opportunities we see ahead of the for the business and the agility and discipline With which we have executed has us poised to deliver on our near long and long term objective. I would like to thank all of our store and warehouse associates as well as corporate team members for contributing to our record results And their continued efforts, which has us positioned for another record breaking year in 2023. We look forward to sharing progress with you as we move through the year This concludes our prepared remarks, and we will now turn the call back over to the operator for questions.

Speaker 3

Operator?

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Steve Silver with Argus Research. Please proceed with your question.

Speaker 4

Thank you, operator, and thanks for taking the questions and congratulations on the record results for our Q1. Voin, in your remarks, you mentioned comfortable with the inventory position entering Q2. Just hoping you could provide a little more color, just in terms of How we should expect inventories to progress over the course of the year, given all of the investments that the company is making in terms of Content and new expected product launches over the rest of the year?

Speaker 3

Sure. Thanks, Steve. Thanks for the nice words and like answer your question. We are definitely feeling good about inventory and the composition of the inventory as we are starting the Q2. As I mentioned in our prepared remarks, There was some noise last year as it relates to inventory flow as we are pulling forward inventory buys to really Avoid potential disruptions caused by COVID and supply chain challenges that we were facing In late 2021 early in 2022.

Speaker 3

So this year, we expect inventory flow to be more normalized in line with like probably Before COVID, one thing that I do want to point out as we continue to grow our wholesale business and support our Partners in some of those relationships, our inventory flow for them as we sell to them on wholesale basis may be a little bit different. And we need to have inventory on hand to support their replenishment. So as we think probably on a full year basis by year end, I would still expect to finish We are at the inventory level below last year's level.

Speaker 4

Great. That's helpful and congratulations again.

Speaker 3

Thank you,

Operator

Steve. Closing comments.

Speaker 2

Thank you for joining us today, and we look forward to updating you on our progress on the year with our next call for Q2 results.

Operator

Ladies and gentlemen, this does conclude today's teleconference.

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Hudson Pacific Properties Q1 2024
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