Build-A-Bear in Q4 loss; will close up to 30 stores, focus on off-mall expansion

3/13/2019
Build-A-Bear Workshop swung to a loss in its fourth quarter amid challenges in its two biggest markets: North America and the U.K.

In its quarterly call with investors, CEO Sharon Price John said the company expects to close up to 30 stores over the next two years, with about half of those outside of North America. She noted that while the chain has been proactively managing its mall portfolio, it has also been diversifying away from traditional mall to broaden consumer accessibility to its brands. That will continue going forward.

In October, Build-A-Bear piloted a six, full-service standalone Build-A-Bear shops inside select Walmart locations. Based on the pilot stores, the retailer is working with Walmart to identify expansion plans for 2019.

In addition, Build-A-Bear is expanding its tourist strategy, including its partnership with Great Wolf Lodge, America's largest operator of indoor water park resorts. (Build-A-Bear has a wholesale relationship with Great Wolf whereby Great Wolf furnishes and operates the space and purchases goods from the retailer similar to its arrangement with Carnival Cruise Lines.)

“Four shops were open [in Great Wolf locations] in the fourth quarter and we expect them to expand to 17 locations in 2019,” Price said on the call.

The specialty toy and accessories retailer reported a net loss of $10.4 million, or 72 cents a share, in the quarter ended Feb. 2, compared to earnings of $7.7 million, or 49 cents a share, in the year-age period. Excluding certain charges, the company had an adjusted loss per share of 5 cents, compared with a Street forecast of 35 cents.

Total revenue fell to $101.5 million from $117.42 million, below estimates. For the full year, revenue totaled $336.58 million, down from $363.96 million.

In a statement, John cited a number of “unusual challenges” that combined to negatively impact the company’s fiscal 2018 results, including weakness in North America, the company's biggest market, which resulted in a low single-digit sales decline and modest profit on an adjusted basis. It also included the impact on consumer sentiment of Brexit on the U.K. market, the company's biggest overseas market.

"Other impacts for the year included the full-year closure of our most profitable, multi-million-dollar retail store, the liquidation of Toys "R" Us, the impact of new accounting standards and tax policies, and lower licensed product sales due to the significant reduction in family-centric movie properties," the CEO said.

Looking ahead, John said although situation in the United Kingdom still poses a challenge, the company believes that most of the unusual circumstances that marked 2018 are now behind it.

“As such, we expect fiscal 2019 to return to profitability through a combination of improved retail sales benefitting from a strong slate of family-centric films, continued double-digit growth in e-commerce, and further expansion in non-retail revenue streams,” she said. Our strategy remains focused on diversifying our revenue streams to better monetize the power of the brand with the intention of improving longer-term shareholder value.

As of February 2, 2019, Build-A-Bear operated 373 corporately-managed locations, including 313 in North America and 60 outside of North America. The company’s international franchisees ended the year with 97 stores in 11 countries.
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