Build-A-Bear Workshop, Inc. Reports Improvement in Third Quarter Fiscal 2019 Results Over Prior Year

Third quarter results

ST. LOUIS - (BUSINESS WIRE) - Dec. 5, 2019 - Build-A-Bear Workshop, Inc. (NYSE: BBW) today reported results for the third quarter and 39 weeks ended November 2, 2019. In the fiscal 2019 third quarter:

• Total revenues were $70.4 million compared to $68.7 million in the fiscal 2018 third quarter, inclusive of a 2.0% increase in net retail sales and a 17.9% increase in commercial revenue;

• Retail gross margin expanded to 39.5%, a 400-basis point improvement compared to the fiscal 2018 third quarter;

• Selling, general and administrative expenses (“SG&A”) were $35.4 million; as a percent of total revenue, the Company showed an 80-basis point improvement compared to the fiscal 2018 third quarter; and

• Pre-tax loss was $7.7 million, a $2.3 million improvement from the fiscal 2018 third quarter, or a $1.0 million improvement over the prior period when adjusted for costs primarily related to non-cash asset impairment charges.

Sharon Price John, Build-A-Bear Workshop President and Chief Executive Officer, commented, “We continued to advance our strategy to leverage the power of the Build-A-Bear brand as we increased revenue and improved our pre-tax performance in the third quarter, which is the smallest quarter of our fiscal year and typically results in a loss. Net retail sales saw growth across geographies in North America and Europe inclusive of our eighth consecutive quarter of double-digit ecommerce growth while our diversification initiatives delivered an increase in our commercial revenue segment. We remain focused on evolving our company and leveraging our brand strength as we expand into additional categories reaching more consumers beyond the traditional mall-based retail model.”

Additional highlights

Additional Third Quarter 2019 Highlights (13 weeks ended November 2, 2019 compared to the 13 weeks ended November 3, 2018):

• Net retail sales were $66.6 million compared to $65.3 million in the fiscal 2018 third quarter;

• Income tax benefit was $1.8 million, compared to an income tax benefit of $3.9 million in the fiscal 2018 third quarter; and

• Net loss was $5.9 million, or $0.40 per share, compared to a net loss of $6.1 million, or $0.42 per share, in the fiscal 2018 third quarter.

Store activity

Store Activity:

The Company maintains a high level of lease optionality with nearly 70% of corporately-managed stores having a lease option within the next three years; accordingly, the Company continues to expect to selectively close up to 30 locations over the next two years partially offset by selective openings. As of November 2, 2019, the Company operated 371 corporately-managed locations, including 315 in North America inclusive of 22 shop-in-shops within select Walmart locations, and 56 outside of North America. Through its third-party retail model, there were 54 stores in operation with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry’s Inc.

and Beaches Family Resorts. The Company’s international franchisees ended the quarter with 104 stores in 13 countries.

Balance Sheet:

As of November 2, 2019, cash and cash equivalents totaled $6.2 million. The Company ended the third quarter with no borrowings under its revolving credit facility.

Total inventory at quarter-end was $66.2 million compared to $57.3 million at the end of the fiscal 2018 third quarter. The fiscal 2019 third quarter inventory increase was a result of the receipt of inventory supporting key product stories and acceleration of some receipts of China-sourced goods due to potential tariffs. In the third quarter of fiscal 2019, capital expenditures totaled $5.2 million and depreciation and amortization were $3.6 million.

As the Company previously noted, for comparison purposes, on February 3, 2019, it recorded lease liabilities of $176.2 million upon adoption of the new lease accounting standard, also referred to as ASC Topic 842, based on the present value of remaining lease payments. A corresponding right-to-use asset of $151.5 million was recorded on the balance sheet upon adoption which was net of accrued and prepaid rent, deferred lease incentives and impairment charges.

2019 expectations

2019 Expectations (52 weeks ending February 1, 2020 compared to the 52 weeks ended February 2, 2019):

On a GAAP basis, the Company is updating guidance for fiscal 2019 total revenue and depreciation and amortization.

For fiscal 2019, the Company currently expects:

• Fourth quarter total revenue to be in the range of slightly positive to down low single-digit due to lower than expected quarter-to-date traditional mall traffic and sales associated with a key licensed movie property as well as the loss of revenue from the developer’s delay in the opening of a planned flagship location, resulting in total revenue for the fiscal year to be in the flat to down low single-digit range;

• Pre-tax income to be slightly positive; Capital expenditures to be in the range of $12 to $14 million;

• Depreciation and amortization to be in the range of $14 to $15 million;

• Operating cash flow less capital expenditures to be positive for the year; and

• To finish the year with $20 to $25 million in cash and cash equivalents.

Although it does not expect its results to be impacted by the following, the Company notes that the above guidance does not include any potential end-of-year non-cash asset impairment charges nor a significant variance in foreign currency exchange rates. The Company has also noted that it continues to assume that there will be no changes in the rate or effective date that have been announced for the potential tariffs on China goods later this year.

Build-A-Bear Workshop will host a live internet webcast of its quarterly investor conference call at 9 a.m. ET today. The audio broadcast may be accessed at the Company’s investor relations website, The call is expected to conclude by 10 a.m. ET.

A replay of the conference call webcast will be available in the investor relations website for one year. A telephone replay will be available beginning at approximately noon ET today until midnight ET on December 12, 2019. The telephone replay is available by calling (844) 512-2921. The access code is: 13695127.

Build-A-Bear is a global brand kids love and parents trust that seeks to add a little more heart to life. Build-A-Bear Workshop has more than 450 stores worldwide where Guests can create customizable furry friends, including corporately-managed stores in the United States, Canada, China, Denmark, Ireland, Puerto Rico, and the United Kingdom, and franchise stores in Africa, Asia, Australia, Europe, Mexico and the Middle East. Build-A-Bear Workshop, Inc.

This press release contains certain statements that are, or may be considered to be, “forward-looking statements” for the purpose of federal securities laws, including, but not limited to, statements that reflect our current views with respect to future events and financial performance. We generally identify these statements by words or phrases such as “may,” “might,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “predict,” “future,” “potential” or “continue,” the negative or any derivative of these terms and other comparable terminology. All of the information concerning our future liquidity, future revenues, margins and other future financial performance and results, achievement of operating of financial plans or forecasts for future periods, sources and availability of credit and liquidity (including our ability to amend our credit facility on a timely basis on terms acceptable to us or at all), future cash flows and cash needs, success and results of strategic initiatives and other future financial performance or financial position, as well as our assumptions underlying such information, constitute forward-looking information.

All of our forward-looking statements are as of the date of this Press Release only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct.

An occurrence of or any material adverse change in one or more of the risk factors or other risks and uncertainties referred to in this Press Release or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the SEC could materially and adversely affect our continuing operations and our future financial results, cash flows, available credit, prospects and liquidity. Except as required by law, the Company does not undertake to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.