Build-A-Bear Workshop Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 29, 2024

There are 9 speakers on the call.

Operator

Greetings, and welcome to the Build A Bear Workshop Second Quarter 2024 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 Schniero, Investor Relations.

Operator

Thank you, sir. You may begin.

Speaker 1

Thank you. Good morning, everyone, and welcome to Build A Bear's Q2 2024 Earnings Conference Call. With us today are Build A Bear's CEO, Sharon Price John and CFO, Boind Dvorovich. During this call, we'll refer to forward looking statements that are subject to risks and uncertainties. Actual results could differ materially.

Speaker 1

Please refer to our forms 10 ks and 10 Q, including the Risk Factors section. We undertake no obligation to update any forward looking statement. During this call, we will present both GAAP and non GAAP financial measures. A reconciliation of non GAAP to GAAP measures is included in today's earnings release, which is distributed and available to the public through our Investor Relations website. And now, I'll turn the call over to Sharon.

Speaker 2

Thank you, Gary. Good morning and thanks for joining us for Build A Bear's 2nd quarter fiscal 2024 earnings call. For the past several years, we have shared our strategy to evolve the company's business model with the goal of sustained profitable growth by leveraging the power and affinity of the Build A Bear brand. We have occasionally referred to this as approaching the business as a way to expand into with new people, new places and with new types of product offerings. With that in mind, over the past few years, we have worked to extend Build A Bear's consumer base beyond kids to take advantage of our growing multi generational appeal.

Speaker 2

We have done this with primarily collectibles, trend products, licensing and gifting, resulting in an increase in our teen and adult business now representing approximately 40% of our total retail sales. We have continued to drive our consumers' first engagement with Build A Bear at its experience locations by broadening our geographic reach and store types beyond our historical U. S. Focused mall based traditional footprint. We have become more global with more store types in a variety of shopping environments with new business models.

Speaker 2

This effort has led to an acceleration of store growth and by the end of 2024, we expect to have opened nearly 90 net new locations over the past 2 years, all while continuing to maintain and integrate with a meaningful web business. And we are evolving product categories beyond the iconic make your own customizable cadre of characters with new introductions like the successful MiniBeans collectibles, which have already sold over 1,500,000 units since their launch earlier this year. These efforts have resulted in a more diversified business, which when coupled with more efficient operations has, as envisioned, delivered more products in more places to more people at a consistently higher level of profitability. With strong cash flow and no borrowings, the company has been able to both invest in the future and return capital to shareholders. In fact, over the past 3 plus years, Build A Bear has enjoyed record breaking results, including an unprecedented period of profitability compared to any other time in its quarter century history.

Speaker 2

Aligned with this trend, I'd like to share some highlights of our 2024 Q2. These results represent the best Q2 in the company's history. Revenues of nearly $112,000,000 an increase of nearly 2.5 percent and pre tax income of more than $11,000,000 representing growth of over 10%. These results coupled with strong third quarter to date trends and robust back half plans support the reiteration of our full year guidance. Of note, even when compared to a strong Q2 in 2023 and in the wake of negative reported national retail traffic trends, our unique and memorable retail experience, which so often serves as the first step in the important lifetime consumer journey remained solid.

Speaker 2

Conversely, given some of the ongoing systems enhancements and product launch timing, buildabear.com's overall web demand results were significantly down for the quarter. Fortunately, the challenges driven by shift product launches versus 2023 are expected to be mitigated over the course of the total fiscal year as we have already started to see in early Q3. On balance, 2nd quarter delivered strong earnings per share with a much higher level of profitability when compared to any pre COVID second quarter over the past 15 years. We also remain committed to returning capital to shareholders via a combination of share repurchases and quarterly dividends totaling over $12,000,000 in the 2nd quarter $24,000,000 through the first half of twenty twenty four. Again, overall, we believe these sustained results are largely associated with the continued focus on the execution of our multiyear 3 pronged strategy designed to deliver long term profitable growth grounded in our most valuable asset, the Build A Bear brand.

Speaker 2

Our plans to systematically monetize the awareness and power of the brand include: 1, based on the long held belief of our founder that a teddy bear hug is understood in every language, our first strategic pillar is dedicated to expansion through the experience location. This well researched global retail scaling effort represents not only the evolution of store types, but also a financial model, including a corporately operated model, partner operated model and franchising. While the company has operated in select international markets for decades, a recent post COVID effort has resulted in a multi country rollout, mostly through our partner operated business model in both Continental Europe and South America. In Europe, beyond our long standing corporate operation in the UK, we opened new locations across Italy and France via our capital light partner operated business model. In Italy, we partnered with the well known toy retail and entertainment company, Giochi Preziosi, with plans to introduce a combination of standalone workshops and shop in inside their own toy stores as well as family's toy stores through a shared relationship with the multibillion dollar global conglomerate Reliance Industries.

Speaker 2

We also opened our 1st partner operated location in France at the iconic Paris department stores Galeries Lafayette in Champs Elysees in conjunction with longtime partner FAO Schwarz, with whom we operate the recently expanded and very successful Rockefellers Plaza Shop in Shop in New York City. As a part of our continued U. S. Expansion and in conjunction with our successful tourist location strategy, we opened 2 Las Vegas shop in shops with our new partner, W. H.

Speaker 2

Smith, located inside their Welcome to Las Vegas gift shop at The Forum and Link Promenade. We also opened in the historic Wrigley building on Chicago's famed Magnificent Mile. This store features a specially procured line of licensed branded and theme products to appeal to the Windy City guests, just as we do with many of our other tourist destinations, which generally serves as a meaningful contributor to our comparative over performance in this type of location on almost every key metric. When you include new franchise locations with existing Gulf States and Chilean partners, we added a total of 17 net new locations for the quarter and 23 for the first half across all three business models, corporately operated, partner operated and franchise, which keeps us on track with our guidance to open at least 50 new experienced locations for the fiscal year, in addition to the 37 locations we opened last fiscal year, expanding our global footprint to over 20 countries. 2, 2, the next initiative is the acceleration of a comprehensive digital transformation for the company ranging from overall corporate IT upgrades to website integration to content creation, which we began about a decade ago to unlock value from improved processes and new systems across the entire enterprise.

Speaker 2

One of the key objectives is to become a true omnichannel entity, which is when a company provides a consistent and synergistic shopping experience across all channels, including in store, mobile and online. While we have many of the tools in place to drive greater integration between buildabear.com and Build A Bear Workshop, especially when it comes to efforts like buy online, ship from store, we are still in the process of fully integrating our guests' first party data and shopping history with synergistic marketing and product offerings across the enterprise. The omni channel model when fully executed has been proven to unleash combined power of in store e commerce, email, social media loyalty and traditional communications tactics through a more personalized unified vision, ultimately driving repeat purchase. When you consider that each year, up to 50,000,000 people enter a Build A Bear workshop, and we have an estimated 50,000,000 annual visits to our website, combined with an 85% capture rate in stores and over 20,000,000 first party data records, you can understand why we believe this is such an important part of our strategic effort. However, it is not uncommon for the learning curve associated with implementing and optimizing omni channel integration tools to be somewhat disruptive.

Speaker 2

Therefore, we have been working with partners such as Salesforce as well as other consultants to identify, prioritize and implement opportunities. As an example, on our last call, we shared that we had a significant decline in our web traffic, which was deemed to be largely associated with a decrease in organic search linked to competitive conquesting. Since then, our web traffic has increased and we have enjoyed improved organic search results. We believe this is due to a combination of changes to our search terms, improvements to our SEO strategy, the viral popularity of key new product launches and the positive trickle down impact of the upper funnel investment we made in the Stuff You Love campaign earlier this year. While we are encouraged by these recent results, we also recognize we have more work to do to address the larger web opportunity and plan to continue to stay focused on our digital transformation and omnichannel integration improvements to drive the business.

Speaker 2

3, our last pillar is our continued fiscal focus designed to enable us to make strategic investments to leverage the brand to drive profitable growth while returning value to our shareholders. With this in mind, given the company's meaningful improvement in cash flow over the past few years, we've been able to make a large number of long term strategic decisions across the company, touching product, brand, partnerships, content, talent and infrastructure, all while returning over $116,000,000 to shareholders through dividends and stock repurchases. As we look to the second half of the year, I'm pleased to share that with the backdrop of the ongoing implementation of the above strategies, our Q3 to date results have been strong and driven largely by our Halloween product line, we have posted solid increases in store and double digit increases online. Interestingly, Halloween seasonal product in general has been growing in both interest and revenue in recent years according to the National Retail Federation and Build A Bear has seen the same phenomenon. Having sold out of key items, we made some strategic choices to focus on this year's following season with more offerings, deeper inventory and an earlier launch.

Speaker 2

Leading with a new glow in the dark assortment, a Sanrio collection of exclusive Halloween designs and the reintroduction of a popular replica of the classic 2,008 Pumpkin Kitty from our vault of favorite furry friends, we have planned on kicking off the season in mid August. However, due to an unauthorized leak of a specific product inventory, we accelerated the launch and shared the situation in a press release via social media and in a direct mail to the over 25,000 plus fans had already provided contact information to be informed about the Pumpkin Kitty relaunch. These efforts led to an estimated $285,000,000 PR and media impressions and a viral event contributing to the sellout of the first phases of Pumpkin Kitty, helping to drive record quarter to date sales. Our remaining pipeline for the Q3 includes additional exciting Halloween introductions and the launch of a broadened NFL product offering, the celebration of National Teddy Bear Day on September 9 with in store events and a special promotion, an enhanced relationship with Varsity Spirit, the worldwide leading brand for competitive cheerleading, which includes pop up shops at Cheer Camp and reflecting on our exciting press release earlier today, the introduction of an exclusive 50th anniversary Hello Kitty Make Your Own plush as well as our November plan to open a first of its kind Build A Bear and Hello Kitty and Friends workshop with our partner Sanrio in the premier Westfield Century City Shopping Center in Los Angeles.

Speaker 2

Overall, we delivered solid 2nd quarter results, although we saw some challenges with web demand. As we continue to execute on the strategic initiatives, inclusive of the continued omnichannel integration, we expect to see positive momentum as the year progresses. In closing, while we are very proud of this organization as a pioneer in the creation of experiential retail, it is always nice to receive external validation. As we recently did with Newsweek's 3rd annual ranking of America's Best Retailers. We not only had one of the higher rankings in the list, but were ranked as the number one toy retailer.

Speaker 2

With that, I would like to thank all of the Build A Bear associates, guests and partners for continuing to deliver record results as we work toward our mission of adding a little more heart to life. Loin?

Speaker 3

Thank you, Sharon, and good morning, everyone. It's good to speak with you again today to share our Q2 2024 results. Before I touch on the financials from the past quarter, I want to recap a few highlights. This was our best ever second quarter as we continue to deliver on our strategic initiatives. Even though we faced headwinds working through transitory web challenges, our strong results reflect the ongoing diversification of the business.

Speaker 3

Also as the result of consistent performance and strong cash flow generation, we continue to return capital to shareholders. We paid our 2nd quarterly dividend and during the quarter spent $9,100,000 to repurchase shares. In addition, since the end of the second quarter, we have spent $1,700,000 On a year to date basis, we have repurchased over 5% of our outstanding share count. Now moving to 2nd quarter results. For the quarter, total revenues were $111,800,000 up 2.4% year over year.

Speaker 3

Net retail sales were flat at $103,500,000 A 28.2% decline in web demand was offset by growth at existing stores plus the addition of new locations. As we discussed on our Q1 call, last year's 53rd week caused a shift in comparable weeks this year. 1st quarter's impact was mostly reversed during the Q2 benefiting store sales. Additionally, retail sales for Q2 last year increased nearly 8%, driven by the timing of product launches both in stores and online creating a more difficult comparison for the quarter. Our store traffic outpaced national traffic, though slightly down for the quarter and was offset by increased store conversion.

Speaker 3

Traffic improved in July and that trend has continued into the Q3, most likely benefiting from the earlier investments in our brand campaign, the Stuff You Love, as well as new product launches. Web demand was impacted by a lighter products launch schedule this past quarter against successful product launches last year. Challenges related to organic search also impacted web demand, but we have seen solid search improvements starting in late Q2 and into Q3. Looking ahead, Q3, which includes Halloween, has a stronger product launch schedule. And as Sharon mentioned in her comments, web demand is up double digits and our stores have also posted strong performance on a quarter to date basis.

Speaker 3

Commercial revenue, which primarily represents wholesale sales to partner operators and international franchise revenue were up 44.8% versus the prior year. We continue to expect strong growth for the segment on a full year basis. Gross margin was 54.2%, an increase of 50 basis points compared to year, mainly due to commercial margin expansion. The remainder of improvement was from retail gross margin expansion, driven by growth in the retail merchandise margin, partially offset by higher depreciation expense related to last year's rollout of the new point of sale system. SG and A expenses were $49,200,000 or 44 percent of total revenues compared to 44.2% last year.

Speaker 3

The 20 basis point improvement in SG and A rate was primarily driven by expense timing and disciplined cost management. On our previous call, we mentioned that for the Q1 SG and A was negatively impacted by expense timing and this partially reversed in Q2. For the full year, we continue to expect SG and A is a percent of total revenue to be at or below 2023's level. Pretax income grew 10.2 percent to $11,500,000 a second quarter record. Diluted earnings per share was $0.64 an increase of 12.3%.

Speaker 3

This reflects our growth in pre tax income and a reduction in the share count, partially offset by higher tax rate compared to prior year. With respect to the balance sheet, at 2nd quarter end, our cash balance was $25,200,000 representing a $7,400,000 decline year over year. This was after returning $33,000,000 to shareholders over the past year and also reflects some cash flow timing due to the calendar shift. Inventory at quarter end was $67,000,000 increasing $700,000 or 1% compared to the same period last year and it is in line with our expectations. Turning to the outlook.

Speaker 3

Given our solid second quarter results and 3rd quarter to date momentum, we are reiterating our annual guidance. The full details of guidance are included in the press release, but I will highlight a few key metrics compared to fiscal 2023, excluding the impact of the 53rd week. We continue to expect total revenues to grow on a mid single digit basis. This growth is partially driven by the addition of at least 50 net new locations with the majority coming through partner operated expansion, both internationally and domestically. As we add more experienced locations and expect a more favorable 4th quarter comparison on a 13 week basis, we expect revenue acceleration in both the 3rd Q4.

Speaker 3

Pre tax income to grow in the mid single digit range on the full year basis. The outlook also reflects ongoing wage and inflationary pressures, increased depreciation expense and increased freight costs. In closing, I would like to thank all of our store and warehouse associates as well as corporate team members and partners for their ongoing dedication to the execution of our strategy to evolve the company by leveraging the power of the Build A Bear brand. This concludes our prepared remarks, and we will now turn the call back over to the operator for questions. Operator?

Operator

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

Speaker 4

Sure. Good morning. Congratulations on a solid Q2 and a strong start to Q3.

Speaker 3

Thanks, Eric.

Speaker 4

I'll talk a little bit thank you. The mini beans, right new product, little bit lower price than the full size bear. Are you seeing that being as more of an add on or incremental or just a single purchase? How is that helping to change the overall mix of, I guess, units and in pricing in terms of the stores?

Speaker 2

Thanks, Eric. Appreciate that. Yes, the mini beans have been the labor of love for us. We love the fact that we're not only are we creating unique mini beans, but a lot of the ones that we create from a design perspective are what we call takedowns of some of our most popular products. One of the reasons we do that, it might be a little counterintuitive, but a lot of people want to buy the mini bean as a product that they've already purchased the larger make your own item.

Speaker 2

So that dynamic often drives the add on purchase for MiniBeans. And the one of the key reasons, so at net net, we're seeing as the sales would reflect in total, we're seeing an increase, although there is a combination of people coming in. We're just a mini bean or 4 or 5 mini bean sometimes. And that but that lower price point also helps us drive our conversion, which Voin mentioned, if somebody is coming in and that's an easy pickup purchase for them. But there is this other dynamic that's also an add on purchase.

Speaker 2

And so you're seeing on total an increase overall of our sales and a slight increase in conversion as we talked about. One of the reasons though strategically that we launched the MiniBeans was not just to put them in our stores, but as a proof point of the power of the brand to stretch beyond the make your own concept with plush. And we wanted to prove that inside of our own retail location. That opens up a wholesale opportunity for us because there's not that make your own experience process necessary for you to enjoy these products. And we are in the process of working with other retailers, not only here in the United States, but across the globe, to sell many beans, as just their own plush items.

Speaker 4

That's a great point. Quickly on the international and the licensing opportunity, I would assume that as this is a success in one country, you're going to see people come to you for other locations, other territories. How should we be thinking about where we are in the potential growth for this group? And where should we be thinking about it going longer term? Thank you.

Speaker 3

So, thanks for the question, Eric. International opportunity as it relates to these partner operated location is really one of the bright spots for the organization. We are very pleased with success that we have been seeing so far in some of the countries that we are operating and expanding and definitely positive feedback from our partners. As you may recall, over the last couple of years, after COVID, it was really challenging for anybody to travel and to go and expand some of those relationships. We have many inbound requests about some of these opportunities, and we are working on some of those and we continue to evaluate and we want to make sure that we explore all the opportunities and find the right partners that can scale in the respective markets that they are operating.

Speaker 3

But we believe this is going to be an opportunity for many years to come.

Speaker 2

When you think about where could this go, we've mentioned this in the past, Eric, just from a macro perspective, and this would be inclusive of our the operated stores that we have in the UK and Canada and Ireland. But most of the time, U. S.-based companies look at store opportunities or even business opportunities in general as the scale in the United States usually is about half or 40% of what's possible on a global basis. So, we've mentioned before that we feel that it's not unreasonable to believe that we could have as many stores outside of the United States as we have inside the United States. But just note when you're modeling that, that right now that's leaning toward more partner operated and franchise operated, which is a little different way to calculate it from a retail revenue perspective.

Speaker 4

Excellent. Thank you. Enjoy the early Halloween. The stores look great and good luck for the rest of the year.

Speaker 3

Thanks, Eric.

Operator

Our next question comes from the line of Michael Baker with D. A. Davidson. Please proceed with your question.

Speaker 5

Okay. Thanks. The back half guidance suggests much better trends than the first half, I think even better than the second quarter, which seems reasonable because you're doing really well. But I guess, what sort of risks or if you could flush out the back half guidance, your holiday expectations, how do you think about besides you guys, we're seeing a lot of consumer negative consumer data points, people are concerned about the election. How does all that play out?

Speaker 5

Points, people are concerned about the election. How does all that play into your outlook that, again, the second half seems like it's going to be just a lot better than the first half?

Speaker 3

So I'll take that, Mike. Thanks for the question. Our guidance really hasn't changed from the beginning of the year. We keep reiterating. We have known this being an election year, there is going to be a lot of ups and downs as well as we have some choppiness in our comparison with the prior year.

Speaker 3

We always said that it's going to be back half weighted. And when you think about we shared about store count, we opened about 23 stores so far on a year to date basis, 17 we added in the 2nd quarter, 16 Q1. We expect some of that stuff to accelerate to get to at least net 50 by the end of the year. So we believe that's a big piece of some of that growth. In addition to that, our commercial business has been very strong and we expect to see the expansion in that particular segment.

Speaker 3

Also from the product launch perspective, we talked about some of the things and some of the strong trends that we are seeing in Q3. Again, that's all contemplated within our full year guidance, but when some of these launches and timing of product arrivals happens Q2 versus Q3, there is some noise. But speaking from the comp perspective and some of the comparisons with last year, 2nd quarter was our toughest comp quarter because we saw some strong results last year. And as we went last year into Q3 into Q4, our business was a little bit softer. So we believe we have some more opportunities later on in the year.

Speaker 3

And as well, we are excited about the Halloween success that we have seen so far and the amount of investment that we made in that product. And so that gives us the confidence as we think about the full year guidance. In addition to that, there is still some uncertainty. That's why we have the high and low end range of the guidance. We feel good about things that are within our control and what we can do, but the external outside factors that could impact us are clearly outside of our control and thus some of that impact for the range the way we have it.

Speaker 3

Yes, makes sense. A lot of

Speaker 5

good things there. Another I think good news situation, but maybe a little more color is just to clarify. So web demand was down 28% in the 2nd quarter and you're saying it's up in the 3rd quarter. Did you say up double digits in the 3rd quarter? So I just want to make sure those metrics are sort of apples to apples.

Speaker 5

You swung from down 28% to now up double digits or am I hearing that wrong?

Speaker 3

So we were down on a full quarter, down 28.2%. We are up strong double digits so far on year to on a quarter to date Q3.

Speaker 5

Okay. And so then I guess a follow-up there is that just some of the I presume we should see is there anything in the comparison that's influencing that? Is it just is that improvement because of the better search, all the initiatives that you talked about and the benefit you're getting from bringing in sales force consultants, etcetera?

Speaker 2

It's the combination of things as we noted in the prepared remarks. It is some of the improvements in our SEO strategy, some shifts in search engine that is search engine, excuse me, SEO strategy, some other of our efforts on websites integration. But most importantly, I think and we note this, we've had some product timing shifts, and then we mentioned that even in the last call. And those product timing shifts are impactful for the web, particularly. So for example, when we launched this Halloween product collection, the first Hello Kitty phase is not Hello, the first Pumpkin Kitty phases that we mentioned, which was a bulk product, they were online only and that really did drive the business significantly.

Speaker 2

And we had not launched any of the Halloween product as an example until much later in Q3 last year.

Speaker 5

Okay. That makes sense. Okay. Thank you very much.

Operator

Our next question comes from the line of Greg Gibas with Northland Securities. Please proceed with your question.

Speaker 6

Hey, good morning, Sharon and Duane. Thanks for taking the question. Congrats on the strong results. Wanted to follow-up on just new store growth and your expectations there, a solid step up in Q2 2017 versus Q1, reiterating your expectations for the full year. Just wanted to get a sense of maybe the cadence of new store growth in Q3 versus Q4?

Speaker 6

And also if you could maybe discuss, I guess, the geographic breakdown of the new store growth that you had in the quarter?

Speaker 3

So I'll take that. So thanks for the question. Again, definitely, we are pleased about our opportunities from the store count growth perspective. We would, of course, prefer to open those as quickly as possible, especially for our own stores or even for our partners to maximize the opportunity for this year. The goal is definitely to take advantage of the Q4 and open them as early as possible.

Speaker 3

Some of those things, especially internationally partner operated locations, there are some additional logistics things to work through and especially with some of the challenges around logistics routes around the world that are impacting and delaying in some cases some of these openings or the product and equipment flow. But again, the goal would be to open all that stuff to be ready for the holiday season as much as possible. When we think about some of the growth, we said a lot of those are going to be partner operated between both domestic and international. And there is some of the owned and operated locations that we are expanding in some of the key markets and share and touched on 3 of the stores in some of the key tourist areas that we are opening that we are excited about.

Speaker 6

Great. That's helpful. And just I know you don't like to necessarily point to kind of same store sales growth, but wanted to get a sense there, just given there were a good number of openings this quarter. And with web being down, I know it makes it a little challenging, but just wanted to get a sense of maybe same store sales kind of on a brick and mortar front.

Speaker 3

So we don't talk about the same store sales, but I'll try to provide some color about as we mentioned earlier in the year, because of the 53rd week shift, when you are making that true comparative of week over week, our GAAP 13 weeks this year versus 13 week last year do are benefiting from the same thing that we were having some headwind in the Q1 of the year. So if you are looking at the existing store sales plus this week shift like in existing stores, we have seen an improvement. We also have seen some growth from the new stores that's offsetting this decline in the demand being flat for the quarter. And also another thing to point out, this 28% in web demand that we are seeing compared to last year, 25% to 30% of our business that we've seen from the web demand perspective gets fulfilled through our store locations and we see and we report those sales based on the location where the stores are where the shipments are fulfilled from. In this case, that's from our stores.

Speaker 3

So if the web demand theoretically was flat to last year and we kept the same things, our stores would have seen even stronger results.

Speaker 6

Great. That's helpful. Thank you.

Operator

Our next question comes from the line of Steve Silver with Argus Research. Please proceed with your question.

Speaker 7

Thanks, operator, and congratulations on the Q2 milestone.

Speaker 4

So a lot of

Speaker 7

the questions have already been answered, but one I have is the discussion around certain items from the Halloween collection being depleted. I know you guys have spoken on previous calls about the investments in the supply chain and managing inventory levels. But can you just talk a little broadly about how the supply chain is set up to replenish items quickly? I guess given the fact that the company is so heavily involved with seasonal and holiday items. Just can we talk a little bit about how the company just is able to replenish so quickly in the supply chain?

Speaker 7

Thanks.

Speaker 2

On some of these seasonal items, it's obviously more difficult because the more truncated the time period is, the harder it is to push something to the supply chain process. But we work very hard with to try to be as predictive as possible based on our history. And we have also learned through the years, whether that's through not just seasonal items, but also sometimes items associated with hot licenses that might be event driven like a film, to manage the inventory. And oftentimes, as I mentioned, for Halloween last year, we will sell out before the date. Now in this particular case, we learned as we tried to do under most circumstances, that there's a big shift in Halloween.

Speaker 2

And we did the research to support that shift, that there's much more interest in some consumers across the board on Halloween. So as we mentioned in the remarks, we increased our inventory, our breadth of product. And in this particular case with the Pumpkin Kitty launch, we actually have a flow coming in. So it's hitting web first and then it hits the stores. So we still have a couple of bites at this for the flow of Hello Kitty.

Speaker 2

We didn't have a Pumpkin Kitty. We didn't have it all come in at once. We wanted to get a sense and if we could catch some more of it and increase the number of units that we ordered for the last flow, we were able to do that. So there's a lot of different levers that we try to pull to optimize without getting ourselves way over our skis when we don't have specific knowledge. In this particular case, we did have some good knowledge because we had had Pumpkin Kitty in the past.

Speaker 2

The supply chain process is a wholly is an entirely different kind of challenge for us that has issues kind of across the board, with from sourcing to shipping. But the other thing to think about that I think is really important is although we do have seasonal and licensed product, still the majority of our business is consistent ongoing evergreen items that our core business is made up of classic teddy bears, birthday treat bears, Paulette bunnies. We still do the majority of business there and we're able to manage our supply chain and basically, and I'm careful when making statements like this, always have something available for the consumer, whether online or in store that we hope they will like. It might not always be the licensed product or the exact right seasonal product, but because most of our business is evergreen, it does allow us to sometimes order long, order short, stay deep, stay in inventory in a way that it might be difficult for some others. Because, again, there's no it doesn't matter, from a seasoned size, sizes or age, there's no aged inventory for some of these core classic products.

Speaker 2

Teddy bear always appreciated.

Speaker 7

Great. Thanks for the color. Congratulations again.

Operator

Our next question comes from the line of Doug Lane with Water Tower Research. Please proceed with your question.

Speaker 8

Yes. Thank you and good morning, everybody. I was just curious because real business is good here and financially you're very strong. And I'm just wondering is there an opportunity to accelerate reinvestment in your business either through more capital expenditures or perhaps acquisitions? Just what are your thoughts on that front?

Speaker 3

So thank you for the question. Yes, we are very pleased with things that you are sharing that our balance sheet is healthy, that our profitability has been solid and that we continue to find ways to optimize the business and support our growth. When you think about there are opportunities, like we have regular discussions with our Board and look at ways between investing in the business, that's always our number one opportunity, returning money to shareholders and looking at other opportunities to grow the business. One of these things, even though we are expanding significantly our presence globally, we are doing it through this asset light model where we are opening stores through our partner operated locations and very asset light. So we are in more places without spending a lot of capital.

Speaker 3

In addition to that, we are looking and opening stores and Sharon cover some of those stores even in domestic markets. And in UK, we shared some stores that we opened last year in these storage locations. So we are definitely looking at ways to open more locations, be in more places. We have we are not saturated from the store count perspective. And then as we think about all the other opportunities, we are always open and interested in hearing and learning.

Speaker 3

And if there is a strong ROI, we'll definitely would consider things.

Speaker 8

And what is the track record with acquisitions? Have you looked at any small ones? Is there an opportunity for a big one? Or is it just really not feasible or not practical?

Speaker 2

I think it's important to understand it's a publicly traded company. Obviously, we can't share what we're looking at or not looking at from an acquisition perspective or not. But on that front, we have often mentioned that we have an open mind to the right type, the right size. And most of the time when we're considering it, we're thinking about something that like everybody else is is additive or synergistic. And in some cases, we are making concerted investments in the company.

Speaker 2

And you may want to, as we recognize, it's often the case, buy the capability versus build the capability. And if there's something that can accelerate, particularly a strategy that's already proven and working for us, that makes sense, we would do that. The largest acquisition to my knowledge that we've made as a company, however, was the UK acquisition of the stores themselves. There was a competitive company running a like Build A Bear concept in the UK and we purchased that entity some years ago prior to both me and Voin. And that is what we operate there is still the bones of that operation.

Speaker 8

Okay. That's good color. Thank you.

Operator

Thank you. We have no further questions at this time. I'd now like to turn the floor back over to management for closing comments.

Speaker 2

Thank you so much. We appreciate everybody being on to hear the results of our record breaking Q2 and we look forward to sharing Q3 results with you.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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Earnings Conference Call
Build-A-Bear Workshop Q2 2025
00:00 / 00:00
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