Analysis: Build-A-Bear Workshop on right track as it expands beyond malls
After last quarter's uplift in total sales, it is disappointing to see Build-A-Bear Workshop slump back into the red with a 1.6% decline in total revenue. Even more worrisome is the 7.4% decline in comparable sales, which come off the back of an equally dismal 8.6% dip in the prior year.
Despite the slight rebuilding of margins, largely thanks to the careful management of input costs, the pressure on the sales line translated into a 22% decline in net income. However, thanks to much-improved profit performance during the second quarter, Build-A-Bear still ends this nine-month period with profit up by almost 153%.
Build-A-Bear, which remains heavily reliant on passing footfall to drive sales, has not been helped by the continued softness in mall traffic. Over the past few months, this continued to trend downwards with a consequent impact on custom and revenues.
Given the weakness of some malls, we are encouraged that Build-A-Bear has been working to lessen its reliance on sales via traditional stores, and to reshape its fleet in response to changing patterns of demand. While these actions may not yet be delivering, we are fully supportive of them and believe they represent a sound strategic plan to reverse the company's fortunes.
The program of change is aided by the fact that Build-A-Bear has around 130 leases up for renewal over the next three years. This provides a great deal of flexibility to close or downsize less profitable stores and to invest in and remodel shops with potential. In our view, these steps should result in both lower occupancy costs and higher store productivity over the next few years. Indeed, we believe that some of the remodeling work is already delivering, although this is masked by the fact that the numbers are not yet included in the comparable sales calculation.
Build-A-Bear's decision to broaden its portfolio beyond malls and to try and test new formats is also encouraging. The new concourse format, which has a much smaller footplate than standard stores, is proving successful with higher productivity, a faster return on investment, lower occupancy costs, and more flexible lease terms. The company now operates over 20 of these shops, and we expect more to be added over the next few years.
Despite the success of smaller formats, Build-A-Bear recognizes that in some locations larger flagship stores are appropriate. The New York City store which opened late last fiscal year will be joined by more flagship locations across Los Angeles and in a select number of other markets. In addition to this, the stores in movie theaters and on Carnival Cruise Line ships are providing a lucrative stream of profitable revenue.
Looking beyond stores, the relaunch of the website hit teething problems during this period -- which is one of the reasons why comparable revenues fell. As disappointing as this is, we are optimistic that the better online guest experience will drive traffic, conversion, and sales during the all-important holiday quarter.
Overall, while Build-A-Bear's performance has been sluggish, we recognize the efforts being made to correct it and have confidence that the coming year will bring an uptick in fortunes.
Despite the slight rebuilding of margins, largely thanks to the careful management of input costs, the pressure on the sales line translated into a 22% decline in net income. However, thanks to much-improved profit performance during the second quarter, Build-A-Bear still ends this nine-month period with profit up by almost 153%.
Build-A-Bear, which remains heavily reliant on passing footfall to drive sales, has not been helped by the continued softness in mall traffic. Over the past few months, this continued to trend downwards with a consequent impact on custom and revenues.
Given the weakness of some malls, we are encouraged that Build-A-Bear has been working to lessen its reliance on sales via traditional stores, and to reshape its fleet in response to changing patterns of demand. While these actions may not yet be delivering, we are fully supportive of them and believe they represent a sound strategic plan to reverse the company's fortunes.
The program of change is aided by the fact that Build-A-Bear has around 130 leases up for renewal over the next three years. This provides a great deal of flexibility to close or downsize less profitable stores and to invest in and remodel shops with potential. In our view, these steps should result in both lower occupancy costs and higher store productivity over the next few years. Indeed, we believe that some of the remodeling work is already delivering, although this is masked by the fact that the numbers are not yet included in the comparable sales calculation.
Build-A-Bear's decision to broaden its portfolio beyond malls and to try and test new formats is also encouraging. The new concourse format, which has a much smaller footplate than standard stores, is proving successful with higher productivity, a faster return on investment, lower occupancy costs, and more flexible lease terms. The company now operates over 20 of these shops, and we expect more to be added over the next few years.
Despite the success of smaller formats, Build-A-Bear recognizes that in some locations larger flagship stores are appropriate. The New York City store which opened late last fiscal year will be joined by more flagship locations across Los Angeles and in a select number of other markets. In addition to this, the stores in movie theaters and on Carnival Cruise Line ships are providing a lucrative stream of profitable revenue.
Looking beyond stores, the relaunch of the website hit teething problems during this period -- which is one of the reasons why comparable revenues fell. As disappointing as this is, we are optimistic that the better online guest experience will drive traffic, conversion, and sales during the all-important holiday quarter.
Overall, while Build-A-Bear's performance has been sluggish, we recognize the efforts being made to correct it and have confidence that the coming year will bring an uptick in fortunes.