Ended the first quarter with a $1.6 million
increase in cash to $21.9 million and a 4.9% decline in inventory
as compared to the end of the fiscal 2019 first quarter and no
borrowings on its revolving credit facility
Build-A-Bear Workshop, Inc. (NYSE: BBW) today reported
preliminary results for its first quarter, the 13-week period ended
May 2, 2020.
Sharon Price John, Build-A-Bear Workshop President and Chief
Executive Officer, commented, “We ended fiscal 2019 with growth in
total revenues and improved profitability, a stronger cash position
and no borrowings on our revolving facility. At the time of our
last earnings call, we were building on the momentum from last
year's fourth quarter reporting positive year-to-date sales in
fiscal 2020. However, starting March 18, given the growing concerns
about the spread of COVID-19 and the ensuing governmental and CDC
guidelines in response to the pandemic, we temporarily discontinued
operations of our corporately-managed store fleet while
simultaneously executing a variety of tactics to offset the impact
of the store closures.
“Subsequently, we have seen demand in e-commerce continue to
gain momentum with growth rates increasing to triple-digit levels
with robust selling of key affinity and gifting offerings. In fact,
we had the highest single day demand in our e-commerce history with
the initial offering of our stuffed animal based on "the Child"
from the Disney+ series, The Mandalorian. To support the increased
digital demand, we rapidly evolved our order fulfillment processes,
while following safety guidelines, and expedited a number of new
efforts including adding a chat-bot to help manage consumer
inquiries, an online waiting room to support high site traffic and
a “buy online, ship from store” program to complete orders from
select store locations.”
Ms. John continued, “In addition to driving e-commerce, we have
spent the last few months continuing to actively respond to and
manage the unprecedented circumstances driven by COVID-19, as have
many other companies. While we have reopened select stores with new
safety procedures in place and are cautiously optimistic about how
consumers will respond, we expect to continue key actions that were
immediately instituted to address the crisis including assertive
cash preservation, tight inventory management, a revised marketing
strategy and a reduced workforce while looking toward the future
evolution of the company.
“Separately, our strategic decision to secure a high level of
lease optionality given the changing shopping patterns and
marketplace uncertainty over the last few years has resulted in
over 70% of our store leases having a natural event in the next
three years. As we look to the short and longer-term, this
flexibility in our real estate portfolio provides potential
benefits including an increased opportunity to more efficiently and
quickly evolve our brick and mortar lease structures and footprint,
if we choose to do so.
“We believe that the strategic pivot that we have been making as
a company to diversify our business model gives us resilience to
withstand today’s challenges. The awareness and emotional
connection that our guests have with our brand continues to be a
strong asset and we believe that consumers will look forward to
resuming engagement with brands like Build-A-Bear that make them
feel happy and connected. With modified training and an in-store
experience designed to accommodate social distancing and safety
guidelines for both associates and guests, we expect to have
approximately 35 stores open by the end of this week with more
rolling out over the coming weeks. Finally, I want to express my
gratitude to Build-A-Bear associates for their commitment and
support as well as thank all of the essential services workers that
have been on the front lines during this time,” concluded Ms.
John.
In response to COVID-19, the Company has taken actions
including:
- Reducing and deferring expenses:
- Furlough of over 90% of its employees effective March 29,
2020;
- A 20% reduction in compensation for all employees not on
temporary leave including each of its executive officers effective
March 29, 2020;
- Elimination of the cash retainer for all non-employee directors
serving on its Board of Directors for the fiscal 2020 first
quarter;
- The delayed payment of 100% of the bonus earned by the
company’s executive officers for fiscal 2019 performance and 80% of
such bonuses earned by its other associates;
- The delayed payment of the Company’s contribution to its 401(k)
plan; and
- Reduction in expenses and deferral of payments through
extension of payment terms in many areas including its marketing
programs. At quarter end, the Company had not paid April store rent
and was in discussions with landlords regarding more favorable
terms;
- Reducing its planned capital expenditures to maintenance
levels; and
- Maintaining operating lease optionality with over 70% of
its leases having a natural lease event over the next three years
with approximately 120 locations having events before the end of
fiscal 2020.
Operational and Distribution Network Update due to
COVID-19:
- Starting on March 18, 2020, the Company temporarily closed its
corporately-managed retail locations in North America and Europe.
Since that time, the Company has modified several key operational
processes including:
- Modifying its popular in-store experience to accommodate social
distancing recommendations, crowd limitations and employee and
guest safety considerations; and
- Adding a “Workshop Wednesday” program that offers digital
entertainment and activities for families staying at home,
generating nearly 100 million media impressions when it was
announced in April. The Company expects Workshop Wednesdays to
expand in the future to include in-store events;
- The Company’s e-commerce site was fully operational throughout
the quarter. Order processing times were extended as procedures
were updated to enhance social distancing and sanitation practices
at its distribution center. The Company has seen its digital demand
continue to gain momentum with growth rates increasing to
triple-digit levels following the store closures and has improved
fulfillment times with expanded features including:
- Adding capabilities for select stores to supplement its
e-commerce fulfillment with a “buy online, ship from store”
omni-channel program; and
- Adding new queue technology and enabling a chat bot to better
serve customers in-line for high-demand product launches;
- The Company’s supply chain had minimal disruption in the
quarter with the Company able to receive deliveries in a timely
manner;
- The Company’s franchisees ended the quarter with 80 locations
across Africa, Asia, Australia, Mexico, the Middle East and South
America. The majority of the locations were closed due to COVID-19
at quarter-end and remain temporarily closed; and
- The Company’s third-party retail partners such as Great Wolf
Resorts and Carnival Cruise Lines were closed due to COVID-19 at
quarter-end and remain temporarily closed.
First Quarter 2020 Results (13 weeks ended May 2, 2020
compared to the 13 weeks ended May 4, 2019):
- At the time of its last earnings call on March 11, 2020, the
Company reported an increase in Total revenues on a quarter-to-date
basis compared to the same period in the prior year. Reflecting the
impact of temporary store closures due to COVID-19, the Company had
first quarter Total revenues of $46.6 million in fiscal 2020
compared to $84.4 million in the fiscal 2019 first quarter;
- Total revenues included the Company’s tenth consecutive quarter
of double-digit growth in consolidated e-commerce sales;
- Retail gross margin was 26.9% of retail sales. The retail gross
margin rate, excluding estimated non-cash store impairment charges,
declined 1,825 basis points, including 1,570 basis points related
to fixed occupancy costs that were recorded through the end of the
first quarter despite store closures beginning on March 18,
2020;
- Selling, General and Administrative (“SG&A”) Expenses was
$27.8 million including approximately $3.0 million paid to
furloughed associates of which the Company expects at least $1.5
million to be reimbursed through government programs, and $0.6
million in additional bad debt expenses. SG&A declined by $9.1
million, or 25.4%, compared to the fiscal 2019 first quarter,
primarily due to lower labor costs resulting from store closures
and employee furloughs;
- Pre-tax loss was $18.7 million compared to pre-tax income of
$2.4 million in the fiscal 2019 first quarter. Fiscal 2020 first
quarter pre-tax loss included an estimated $4.8 million, or $0.32
per share, related to asset impairment charges;
- Income tax expense was $2.5 million with an effective negative
tax rate of (13.6%) compared to $1.2 million with an effective rate
of 50.3% in the fiscal 2019 first quarter. The tax rate in the
fiscal 2020 first quarter included a $3.3 million non-cash income
tax charge, or $0.22 per share, related to a valuation allowance
against net deferred tax assets; and
- Net loss was $21.2 million, or $1.42 per share, compared to net
income of $1.2 million, or $0.08 per diluted share, in the fiscal
2019 first quarter.
Income Tax Valuation Allowance:
In the fiscal 2020 first quarter, the Company recorded a
valuation allowance on its net deferred tax assets in North America
in the amount of $3.3 million. The non-cash charge does not have
any impact on the Company’s consolidated operating income or cash
flow, nor does such an allowance preclude the Company from using
the deferred tax assets in the future.
Balance Sheet:
At the end of the 2020 fiscal first quarter, the Company had
cash and cash equivalents totaling $21.9 million, a $1.6 million
increase over the fiscal 2019 first quarter-end and no borrowings
under its revolving credit facility. As noted in the Company’s 10-K
filing, cash and cash equivalents were $23.8 million as of April
13, 2020.
Inventory declined by 4.9% compared to the end of the fiscal
2019 first quarter to $53.2 million. The Company is comfortable
with the quality and composition of its inventory at
quarter-end.
In the fiscal 2020 first quarter, capital expenditures totaled
$2.8 million which reflects previously committed investments in
infrastructure to support its digital initiatives compared to $2.7
million in the fiscal 2019 first quarter. In response to COVID-19,
the Company subsequently has taken action to reduce its planned
capital expenditures to maintenance levels. Total depreciation and
amortization was $3.5 million compared to $3.5 million in the
fiscal 2019 first quarter.
Preliminary First Quarter 2020 Results
The Company’s fiscal first quarter 2020 financial results and
disclosures in this press release are preliminary and reflect the
Company’s current views, including with respect to estimated
charges for impairment of long-lived and right-of-use assets. Final
financial results and other disclosures will be reported in the
Company’s Quarterly Report on Form 10-Q to be filed with the
Securities and Exchange Commission and may differ from the results
and disclosures in this press release due to, among other things,
the completion of closing and review procedures, change in
management’s views including of estimates, and the occurrence of
subsequent events. The Company urges you to read the Form 10-Q when
it becomes available.
Note Regarding Non-GAAP Financial Measures:
In this press release, the Company’s financial results are
provided both in accordance with generally accepted accounting
principles (GAAP) and using certain non-GAAP financial measures. In
particular, the Company provides historic income and income per
diluted share adjusted to exclude certain costs and accounting
adjustments, which are non-GAAP financial measures. These results
are included as a complement to results provided in accordance with
GAAP because management believes these non-GAAP financial measures
help identify underlying trends in the Company’s business and
provide useful information to both management and investors by
excluding certain items that may not be indicative of the Company’s
core operating results. These measures should not be considered a
substitute for or superior to GAAP results. These non-GAAP
financial measures are defined and reconciled to the most
comparable GAAP measure later in this document.
Today’s Conference Call Webcast:
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, http://IR.buildabear.com. 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 June 4, 2020. The telephone replay is available by calling
(844) 512-2921. The access code is 13701600.
About Build-A-Bear:
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
over 500 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, third party retail locations and franchise stores
in Africa, Asia, Australia, Mexico, the Middle East and South
America. Build-A-Bear Workshop, Inc. (NYSE: BBW) posted total
revenue of $338.5 million in fiscal 2019. For more information,
visit the Investor Relations section of buildabear.com.
Forward-Looking Statements:
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, 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.
These statements are based only on our current expectations and
projections about future events. Because these forward-looking
statements involve risks and uncertainties, there are important
factors that could cause our actual results, level of activity,
performance or achievements to differ materially from the results,
level of activity, performance or achievements expressed or implied
by these forward-looking statements, including those factors
discussed under the caption entitled “Risks Related to Our
Business” and “Forward-Looking Statements” in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission (“SEC”)
on April 16, 2020 and other periodic reports filed with the SEC
which are incorporated herein.
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.
All other brand names, product names, or trademarks belong to
their respective holders.
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES Unaudited
Condensed Consolidated Statements of Operations (dollars in
thousands, except share and per share data)
13 Weeks
13 Weeks
Ended
Ended
May 2,
% of Total
May 4,
% of Total
2020 (2)
Revenues (1)
2019
Revenues (1)
Revenues: Net retail sales
$
45,647
97.9
$
81,048
96.0
Commercial revenue
333
0.7
2,754
3.3
International franchising
644
1.4
560
0.7
Total revenues
46,624
100.0
84,362
100.0
Cost of merchandise sold: Cost of merchandise sold - retail (1)
33,352
73.1
44,420
54.8
Store asset impairment (2)
4,819
10.6
—
0.0
Cost of merchandise sold - commercial (1)
140
42.0
1,264
45.9
Cost of merchandise sold - international franchising (1)
255
39.6
440
78.6
Total cost of merchandise sold
38,566
82.7
46,124
54.7
Consolidated gross profit
8,058
17.3
38,238
45.3
Selling, general and administrative expense
26,725
57.3
35,808
42.4
Interest (income) expense, net
(3
)
(0.0
)
20
0.0
(Loss) income before income taxes
(18,664
)
(40.0
)
2,410
2.9
Income tax expense
2,540
5.4
1,213
1.4
Net (loss) income
$
(21,204
)
(45.5
)
$
1,197
1.4
(Loss) Income per common share: Basic
$
(1.42
)
$
0.08
Diluted
$
(1.42
)
$
0.08
Shares used in computing common per share amounts: Basic
14,926,097
14,612,575
Diluted
14,926,097
14,738,240
(1)
Selected statement of operations data expressed as a percentage of
total revenues, except cost of merchandise sold - retail, cost of
merchandise sold - commercial and cost of merchandise sold -
international franchising that are expressed as a percentage of net
retail sales, commercial revenue and international franchising,
respectively. Percentages will not total due to cost of merchandise
sold being expressed as a percentage of net retail sales,
commercial revenue or international franchising and immaterial
rounding.
(2)
Includes estimated charges for long-lived and right-of-use asset
impairment for the three months ended May 2, 2020. See Preliminary
First Quarter 2020 Results section within this release.
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES Unaudited
Condensed Consolidated Balance Sheets (dollars in thousands,
except per share data)
May 2, February 1,
May 4,
2020 (1)
2020
2019
ASSETS
Current assets: Cash and cash equivalents
$
21,851
$
26,726
$
20,238
Inventories, net
53,238
53,381
56,004
Receivables, net
7,099
11,526
8,836
Prepaid expenses and other current assets
5,896
7,117
8,587
Total current assets
88,084
98,750
93,665
Operating lease right-of-use asset
124,112
126,144
145,025
Property and equipment, net
61,626
65,855
65,357
Deferred tax assets
-
3,411
3,241
Other intangible assets, net
-
-
607
Other assets, net
3,005
3,202
2,224
Total Assets
$
276,827
$
297,362
$
310,119
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable
$
22,905
$
15,680
$
20,996
Accrued expenses
10,395
16,536
7,608
Operating lease liability short term
32,963
30,912
29,769
Gift cards and customer deposits
18,530
20,231
19,026
Deferred revenue and other
2,603
2,605
2,006
Total current liabilities
87,396
85,964
79,405
Operating lease liability long term
118,416
119,625
139,407
Deferred franchise revenue
915
1,325
1,580
Other liabilities
1,643
1,717
1,287
Stockholders' equity: Common stock, par value $0.01 per
share
155
152
149
Additional paid-in capital
71,491
70,733
69,550
Accumulated other comprehensive loss
(11,909
)
(12,079
)
(12,120
)
Retained earnings
8,720
29,925
30,861
Total stockholders' equity
68,457
88,731
88,440
Total Liabilities and Stockholders' Equity
$
276,827
$
297,362
$
310,119
(1)
Includes estimated charges for long-lived and right-of-use asset
impairment for the three months ended May 2, 2020. See Preliminary
First Quarter 2020 Results section within this release.
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES Unaudited
Selected Financial and Store Data (dollars in thousands)
13 Weeks
13 Weeks
Ended
Ended
May 2,
May 4,
2020 (2)
2019
Other financial data: Retail gross margin ($)
(1)
$
12,295
$
36,628
Retail gross margin (%) (1)
26.9
%
45.2
%
Capital expenditures (2)
$
2,849
$
2,733
Depreciation and amortization
$
3,457
$
3,512
Store data (3): Number of corporately-managed retail
locations at end of period North America
313
307
Europe
55
58
Asia
1
1
Total corporately-managed retail locations
369
366
Number of franchised stores at end of period
80
90
Corporately-managed store square footage at end of period
(4) North America
716,760
712,782
Europe
78,786
83,344
Asia
1,750
1,750
Total square footage
797,296
797,876
(1)
Retail gross margin represents net retail sales less cost of
merchandise sold - retail. Retail gross margin percentage
represents retail gross margin divided by net retail sales. Store
impairment is excluded from retail gross margin.
(2)
Capital expenditures represents cash paid for property, equipment,
other assets and other intangible assets.
(3)
Excludes e-commerce. North American stores are located in the
United States, Canada and Puerto Rico. In Europe, stores are
located in the United Kingdom, Ireland and Denmark. In Asia, the
store is located in China. Seasonal locations not included in store
count.
(4)
Square footage for stores located in North America is leased square
footage. Square footage for stores located in Europe is estimated
selling square footage. Seasonal locations not included in the
store count.
* Non-GAAP Financial Measures
BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Results (dollars in
thousands, except per share data)
13 Weeks 13
Weeks Ended Ended May 2, May 4,
2020
2019
(Loss) income before income taxes (pre-tax)
$
(18,664
)
$
2,410
(Loss) income before income taxes adjustments: COVID-19 activity
(1)
20
-
Impairment and other charges (2) (3)
5,408
(456
)
Foreign exchange losses (gains) (4)
846
(26
)
Adjusted (loss) income before income taxes (adjusted pre-tax)
(12,390
)
1,928
Income tax (expense) benefit
(2,540
)
(1,213
)
Tax adjustments: Income tax impact: adjustments (5)
-
101
Income tax impact: CARES Act (6)
(773
)
-
Valuation allowance (7)
3,272
-
Adjusted income tax (expense) benefit
(41
)
(1,112
)
Net (loss) income
(21,204
)
1,197
Adjustments
8,773
(381
)
Adjusted net (loss) income
$
(12,431
)
$
816
Net (loss) income per diluted share (EPS)
$
(1.42
)
$
0.08
Adjusted net (loss) income per diluted share (adjusted EPS)
$
(0.83
)
$
0.06
(1)
Represents COVID-19 related expenses at our stores, warehouse, and
headquarters.
(2)
Represents non-cash adjustments including estimated asset
impairment charges related to store fixed assets and right-of-use
operating lease assets, bad debt expense on franchisee receivables,
and inventory impairment charges in the 13 weeks ending May 2, 2020
and May 4, 2019.
(3)
See Preliminary First Quarter 2020 Results section within this
release.
(4)
Represents the consolidated impact of foreign exchange rates on the
re-measurement of balance sheet items not denominated in functional
currency recorded under the provisions of U.S. GAAP and
transactional gains and losses. This does not include any impact on
margin associated with the translation of revenues or the foreign
subsidiaries' purchase of inventory in U.S. dollars.
(5)
Represents the aggregate tax impact of the pre-tax adjustments. As
a result of the Company's full, global valuation allowance as of
May 2, 2020, the Company cannot realize an income tax benefit on
these adjustments for first quarter of fiscal 2020.
(6)
Represents the impact of the technical correction related to
qualified leasehold improvements resulting from the CARES Act.
(7)
Represents the valuation allowance recorded on its net deferred tax
assets in North America.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200602005340/en/
Investors: Voin Todorovic Build-A-Bear Workshop (314) 423-8000
x5221 Media: PR@buildabear.com
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