Q2 2021 Build-A-Bear Workshop Inc Earnings Call

[music].

Greetings and welcome to the build a bear workshop second quarter of fiscal 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

I'd like to ask a question. Please press star one on your telephone keypad, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Ms. Allison Malkin of ICR. Thank you. Please go ahead.

Good morning, Thank you for joining us today with me are Sharon price, John CEO and going to the board of Itch CFO for today's call Sharon will begin with a discussion of our second quarter fiscal 2021 performance and our outlook for the year. After Boeing will review the financials and guidance in more detail we.

We will then open the call to take your questions. We ask that you limit your questions to one question and one follow up this way we can get to everyone's questions. During this one hour call feel free to re queue. If you have further questions members of the media, who maybe on our call today should contact us. After this conference call with your questions.

Please note this call is being recorded and broadcast live via the Internet. The earnings release is available on the Investor Relations portion of our corporate website, a replay of both our call and webcast will be available later today on the IR site I will remind everyone that forward looking statements are inherently subject.

Subject to risks and uncertainties actual results could differ materially from those currently anticipated due to a number of factors, including those set forth in the risk factors section in the company's annual report on Form 10-K, we undertake no obligation to revise any forward looking statements with that I would now like to turn.

Turn the call over to Sharon.

Thank you Allison.

Good morning, everyone and thanks for joining us today to discuss our results for the second quarter of fiscal 2021.

<unk> two has delivered the highest profit in our history for second quarter coming on the heels of a record setting profit in our first quarter.

Accordingly in fiscal 2021, thus far we have achieved the highest profit for first half and our company nearly 25 year existence.

We believe these results reflect momentum that has been building from the execution of our stated strategy agility to adapt to a rapidly evolving environment and ability.

To accelerate key initiatives to drive sustained profitable growth, while recognizing that the business is also benefiting from pandemic related factors, such as pent up demand and stimulus Sun.

I continue to be proud of our team across all areas from corporate where we continue to work from a virtual environment.

To our store associates enthusiastically engaging with our guests and to those working in our warehouses to move inventory and fulfill orders our associates have remained nimble and dedicated to our mission to add a little more heart July.

While we remain appropriately cautious given the uncertainty in course changes due to COVID-19.

And its impact on consumer mobility in the supply chain, we began third quarter with continued strength we.

We're excited about the opportunities that lie ahead to continue our favorable performance in the second quarter in the second half of the year, which is reflected in the upward revision and annual guidance that was announced.

This morning.

The quarter's results were outstanding.

Total revenues were $94.7 million up 135% from 2020 and up almost 20% from the fiscal 2019 second quarter, reaching the highest level in over a decade.

Our brick and mortar stores were predominantly temporarily closed last.

Last year, so the comparisons to 2019 isn't relevant showing the strength that is coming from this channel, including the benefit from our enhanced omnichannel capabilities, such as buy online and either ship from store pickup in store or same day delivery with our relationship with ship.

While ecommerce demand.

<unk> was up by 159% over 2019 digital demand declined by 28% compared to fiscal 2020.

While we had previously noted and anticipated a decline in our prior year's digital demand, which had been buoyed by temporary store closures and the online exclusive launches of some powerful license properties.

Property, the decrease was greater than expected driven by disruptions in the supply chain and delayed launches of select e-commerce products.

Second quarter gross profit margin improved by 53, 2% of total revenue.

Our higher margin reflects the benefit of ongoing lease negotiations.

Leverage of fixed occupancy expense and a triple digit expansion in merchandise margin compared to 2019.

And we delivered pretax income of $9.5 million.

The highest pre tax profit in the second quarter in our company's history and improvement of over 20 million.

<unk> the loss, we incurred in last year's second quarter, and an increase of over $10 million from the fiscal 2019 second quarter.

As we've previously shared we remain focused on our strategic priorities for the year, which are centered on three key areas.

First further acceleration of our digital transformation.

From including content and entertainment initiatives.

Rapidly evolving our retail capabilities and experiences, including Omnichannel and significant expansion of our e-commerce capacity.

And finally, leveraging our solid financial position, including a strong balance sheet to support our business in it.

Able us to make strategic investments designed to drive further growth and increase shareholder value.

Regarding the acceleration of our digital transformation, we are intent on building our business with more effective use of technology and improved and enhanced fulfillment capabilities, while leveraging our expanded digital.

<unk> form to inform and drive marketing and content efforts.

We believe that the positive multiyear ecommerce demand trajectory that we have achieved demonstrates that we are making progress in this area.

In the second quarter, we continued to leverage gifting moments and occasions, including mother's day.

<unk> class day, as well as graduation, and just because.

We believe our investment in an expanded digital platform is enhancing our ability to diversify and grow consumer segment. During these multi generational gifting opportunity.

We continue to invest in platforms to expand our capability.

Capability to fuel demand across all channels.

We are driving positive sales results through new and enhanced use of cloud based technology that we initiated in 2020 and continue to refine.

We are able to more effectively target new guests to drive initial transactions as well as connect with it.

Existing guests by providing personalized offerings based on individual buying an engagement habits.

As we continue to focus on accelerating our digital capabilities. We recently invested in an additional loyalty suite with Salesforce, which we expect to allow us to further leverage our millions of active bonus club members.

To drive repeat visits and increase household lifetime value as well as that new members to the database.

We expect to implement this new technology by early next year.

In addition, we continue to use digital media content and entertainment is marketing and brand building tool to engage consumers and drive.

Drive sales, both online and in our stores.

We look forward to the upcoming launch of our New live action feature films Honey Girls, starring Grammy Award, winning Multiplatinum artist Ashanti and digital media Star Test It broke.

The movie inspired by our historically successful top selling honey girls product line.

Line is expected to be released in late October in conjunction with Sony worldwide Pictures acquisition.

We plan to leverage the buzz and interest to drive demand and affinity for an updated range of merchandise as.

As well as feed traffic to shop, both online and.

And in stores.

Our second in Massachusetts, which is to rapidly evolve our retail capabilities continues to show progress we.

We are offering consumers more ways to connect and are meeting their changing needs by driving omnichannel engagement and expanding delivery choices, which we believe is contributing to our positive sales trends.

Our north American stores, and our United Kingdom stores were predominantly open throughout 2021 second quarter.

While traffic continued to trail historical level, we drove higher transaction values that were approximately 20% up across geographies compared to 2019.

We don't included strong sales growth in many of our tourist location.

It has been a strategic priority in the evolution of our real estate portfolio.

With this in mind, we recently opened several new stores and tourist locations.

Including <unk>.

Icon Park in Orlando.

Our park in Panama City.

And in the River Center, along Riverwalk in San Antonio.

In addition, we continued to leverage the strong strategic Optionality that we have maintained across our real estate portfolio with 70% of our leases having a natural lease event in the next three years.

To give us flexibility to optimize our corporately managed locations.

Our goal is to maintain a strong store base that contribute to our overarching strategic objectives, including supporting our expanded omnichannel capabilities and creating memorable relationships with our guests.

Here, we also have seen some stability returned to our third party retail model, which includes workshop at Great Wolf Lodge beaches family resort and Carnival cruise line, which recently began a staggered return to operation.

The third party retail model allows us to expand in the cockpit.

Cost efficient manner with each partner typically funding the capital investment to open their locations. While also managing the operations of the store inventory and staffing.

As for our third priority regarding the company's financial health, we ended the quarter in a position of strength with a.

Our balance sheet and cash nearly doubled from a year ago.

As it relates to our cash and strategic priorities. We continue to evaluate initiatives that will enable a more rapid acceleration of our key programs and investment opportunities to grow our company.

At this time, we have elected to make.

Strong flexibility and Optionality as we navigate newly emerging headwinds from an ongoing evolving pandemic.

As we look to the back half of the year. We are planning the annual celebration of National Teddy Bear day in September with an event that will last the entire month and feature a sweepstakes that its design.

Intend to further add to our contact database and drive interest in our new product lines.

Following that we have an expanded Halloween collection, which we expect to build on the success we saw last year.

And the fourth quarter brings the highest demand is a year for gift, giving products for all of our consumer segment.

We have a positive.

But for the back half of the year, but do not but do want to voice some caution given external macro variables, such as inflationary wage pressure and supply chain disruptions.

We continue to closely monitor these issues and have made proactive moves including accelerating inventory purchases.

Our select price increases and updated employee recruitment and retention plans.

As we look forward to building on the success that we're seeing in 2021 in order to achieve our goal of sustained profitable growth.

We remained focused on our stated strategy and key initiatives.

We.

Our growth to be fueled by several factors, including.

Accelerating and expanding our digital transformation, giving us additional capability and enabling our company to more aggressively participate in the digital economy.

Our innovative gift, giving products and enhanced marketing tools, allowing us to reach a.

We expect consumer base more efficiently.

Our best in class license relationships that drive interest from engaged affinity segment.

Our ability to leverage a high level of lease optionality and multiple store expansion opportunities, including diverse formats and models such as our third party.

<unk> retail option.

Our ability to leverage the emotional connection that consumers have for our brand, including the use of content and entertainment such as the Honey girls movie coming in October to keep interest high with consumers and finally, our solid financial position with a strong balance sheet.

Broad for incremental growth as we move forward.

In closing we are optimistic about our business trends with continued strength in our third party third quarter to date as I noted earlier.

We have again raised our profit guidance and look forward to fiscal 2020.

One year end.

We are pleased with the progress that we have made.

And look forward to continuing to leverage our strong brand appeal to our broad and diverse base of consumers.

Multiple channels.

Now, let me turn the call over to <unk> to review our financial results.

In more detail.

Thanks, Sharon and good morning, everyone.

We're very pleased to continue to build momentum as we delivered a second quarter profit and the highest level in our history.

Combined with our record breaking first quarter, we were able to report the most profitable first six.

However for our company as well.

Solar revenues gross profit margin and operating income showed solid improvement compared to the pre pandemic levels in the 2019 second quarter.

Further demonstrating the validity of our strategy supported by the focused execution of key in.

Initiatives by our team.

As Sharon noted as we look at the balance of the year, we are appropriately cautious given the uncertain path of COVID-19, and potential headwinds stemming from supply chain disruptions.

However, our strong first half performance and continuing positive trends.

Months gives us the confidence to further increase our guidance for total revenues and EBITDA for the 2021 fiscal year, which I will discuss in more detail in just a minute.

First let me give more detail for our second quarter results, which include comparisons to both the 2000.

In 2019 second quarters due to temporary COVID-19 related store closures last year.

Total revenues were $94.7 million, 835% increase compared to the second quarter of fiscal 2020, and 19, 6% increase compared to 20.

<unk> thousand 19.

We are pleased to see the strong growth partially fueled by pandemic related factors, but we believe also reflects the ongoing affinity that customers have for our brand and their desire to engage in hands on and personal experiences.

Our sales growth was primarily driven by an.

The increase in average transaction value, which grew over 20% in North America compared to the 2019 second quarter.

<unk> reached the highest level for our second quarter across geographies.

Gross profit margin of 53, 2% was significantly.

It's higher than the prior year as a result of 18, 7% and 44, 1% in the second quarter of fiscal 2020 and fiscal 2019, respectively.

The strong growth in total revenues allows us to leverage fixed occupancy expense, which benefited.

From a renegotiated lease terms, which started to take effect in 2020.

Our merchandise margin.

<unk> expanded driven by both lower discounting and higher mark up rates on certain products as we selectively raise prices to mitigate ongoing supply chain.

Currently inflationary pressures that we anticipate being headwinds for the foreseeable future.

SG&A dollars increased compared to both the 4039 second quarters.

However, SG&A as a percent of total revenues improved to 43.

And then 2% versus 53, 3% last year and 45, 1% in 2019.

The increase in SG&A dollars compared to prior years was driven by higher store labor expenses, given the reopening of locations and expanded operating hours.

We also recorded full corporate salaries this year as opposed to fiscal 2020.

Then correlated cost containment initiatives included temporary wage reductions.

In addition, the change in SG&A reflects an increase in variable costs driven by sales growth initiatives.

<unk> inclusive of higher marketing spend and funding a performance incentive programs.

Notably we delivered the highest second quarter pre tax profit in our company's nearly 25 year history of $9.5 million.

This compares to a pre tax.

Loss of $14 million in the prior year's quarter and to a pretax loss of 742000 in the second quarter of fiscal 2019.

Accordingly, with the record breaking first and second quarter profit, we have had a very successful first half for.

For the <unk>.

Months of fiscal 2021.

Total revenues were $186.4 million, an increase of 114% compared to the first six months of fiscal 2020, and 14% versus the first six months of 2019.

Pretax income was.

$22.7 million an improvement of over $15 million from the pre tax loss recorded in the first six months of fiscal 2020.

And $21 million increased compared to the first six months of fiscal 2019.

And EBITDA was 20.

It was $28 million, an increase of $55.3 million compared with the first six months of fiscal 2020, and an increase of $19 million compared to the first six months of fiscal 2019.

Turning to the balance sheet.

We ended the second quarter with cash and cash equivalents.

<unk> of $51.1 million with no borrowings on our credit facility.

Our cash balance is somewhat inflated from timing of inventory receipts and capital expenditures.

At quarter end inventory was down $8 million a reduction of 14, 4%.

Percent from last year's second quarter.

We have proactively proactively accelerated the timing of our placements and increased quantities for core products and evergreen merchandise collections to support our business momentum and as part of our efforts to mitigate ongoing supply chain disruptions.

Assuming no additional material COVID-19 impact either in factories logistics consumer sentiment or store operations. We are targeting to have increased inventory levels compared to the fiscal year ends of both 2020 in 2019 to meet our anticipated.

Business needs.

In addition, our use of capital we will continue to focus on investments supporting initiatives that are expected to generate a stronger return in support of our strategy.

For the first half of the year, our capital expenditures were $1.6 million and we continue to.

We expect to invest close to $10 million on a full year basis again, assuming there are no additional significant COVID-19 related disruptions or delays in availability of goods and services.

Also as our performance expectations in Peru, we are anticipating making cash tax payments. This.

Based on our strong second quarter performance and positive trends.

We are raising our guidance for total revenues and EBITDA for fiscal 2021 as compared to what we shared in conjunction with our first quarter earnings release may 26th.

Specifically, we currently expect.

Total revenues to be in the range of $375 million to $385 million, which represents an increase from our previous guidance for fiscal 2021 total revenues to exceed fiscal 2019 total revenues of $338.5 million.

And EBITA.

This year to be in the range of 45 million to $15 million, an increase from our previous expectation for EBITDA in the range of $28 million to $32 million.

In addition, we continue to expect depreciation and amortization in the range of $13 million to $14 million.

As it relates to our third quarter as noted in this morning's press release sales trends have remained strong and we expect total revenue to exceed both 2020 in 2019 levels.

That growth is coming from the recapture of sales in our physical stores, which as I have noted, but partially closed.

Last year.

We expect our third quarter e-commerce demand to remain flat with last year's third quarter, while still representing a triple digit increase over 2019.

We expect to have higher overall expenses driven in part by higher payroll and marketing.

Closed loss, resulting from temporary reductions in last year's third quarter to mitigate COVID-19 closings.

The third quarter is generally our smallest quarter of the year and as and as historically as it totally historically typical we currently expect to have a pre tax loss in the period.

Our full year guidance assumes no additional significant negative impact from the pandemic such as prolonged store closures due to government mandates.

Please keep in mind that while we expect to see annualized savings from expense reduction initiatives implemented in fiscal 2020.

<unk> core guidance includes the impact of higher payroll and marketing expenses to support the current business can drive growth.

Accordingly, our guidance also reflects funding of performance based incentive programs as well as projections or inflationary pressures from product trade in minimum wages.

Our campuses.

In closing.

We are pleased with our record setting first six months and our momentum so far in the third quarter.

We remain focused on accelerating the execution of key strategic initiatives and we are confident.

We are in a position to achieve.

Beijing call of long term sustained profitable growth.

This concludes our prepared remarks, and we will now turn the call back over to the operator for questions operator.

Thank you the floor is now open for questions.

I'd like to ask a question. Please press star one on your telephone keypad at this time I'll.

Our Goldman tone will indicate your line is in the question queue you.

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We do ask that you. Please limit yourself to one question and one follow up again that is one.

From an <unk> to register a question at this time.

First question is coming from Peter of FCC Research. Please go ahead.

Good morning, congratulations on a great quarter.

Thank you Eric Thanks, Eric.

When you look at.

<unk>.

Okay.

I'm going to ask it differently.

Honestly picked up a lot of customers here and there was tremendous pent up demand from Covid.

How do you feel about how do you feel about converting that first time customer into our many time customer going forward. How do you look upon that as the opportunity here.

Yes. Thank you for the question.

Alright.

You are correct as we know.

In the prepared remarks, we do believe that this is a combination.

Factors that are driving its growth, yes, there is some impact of that.

Enough demand stimulus funds.

But we do believe that some of the fundamental.

All changes that we've made in the business.

Infrastructure, particularly.

<unk> technology e-commerce opening up our ability to ship from stores much of what was implemented over the course of years.

Interestingly, we flipped the switch on.

And final portion to some of this with warehouse management system and our new Salesforce relationship in February of 2020.

All of that is the name of that too.

Yeah.

Manage in a very interesting way.

It's almost at the center.

Dirk.

Yes people are coming back into our stores that we have.

<unk> to capture and enhance that relationship with them.

And new opportunities whether its journey.

Or.

Loyalty program to re engage them to drive that lifetime value the answer here.

So question with all of that background.

It depends.

Some of the more traditional consumers that we have that might be in the 60% that are 12 and under.

We will use a lot of our traditional way no what they shop for before why they got.

Why they came into build a bear for the first time, how do we engage with them based on.

What what property they may have purchased or our win there perhaps even if they provided this information through our loyalty data when their next birthday. It on the adult side, the 12, plus the 40% that our teens tweens and.

That are shopping on that really depends on some of the affinity product.

Therefore example, a pokemon plan, it's highly likely that they will be engaged with that.

A lot of data about.

Collectability of that particular line.

They're engaging with us in some of the gifting program.

Programs adult to adult gift game.

Yes.

We're still learning and evolving on how we then get them to engage with us in the next gifting opportunity.

Working to shift in the mindset.

Build a bear as an optional gift.

For a wide variety of reason.

Adult.

That's a lot of our <unk>.

Efforts that we're making to push build a bear as an option.

A competitor within a competitive realm of other natural gifting opportunity intra.

Interestingly this past year.

The cause people were separated build a bear.

Has served as a a.

You mentioned in the remarks, I just because gift.

Wanting to reach out and send a little bit of heart to someone and let them know that they are thinking about them.

And we believe that that is a big opportunity for us going forward.

Great and just a follow up here so the third party business.

Personal franchising those seem to be a little bit more of a lagging indicator than what youre seeing at the stores should we be thinking about going forward.

Those opportunities will become much more.

If COVID-19 stays the way it is much more.

Something more aggressively to pursue.

They start to ramp up once again.

Yeah.

For case, Eric Great Wolf Lodge is tracking not that differently from the rest of our fleet.

And carnival cruise lines for obvious reasons.

Just now sort of getting the staggered launch up and running but COVID-19 aside the third party retail opportunity is we believe quite quite advantageous for them.

On a number of fronts.

Not.

To which is the lower capital required to roll out new locations and create new guests and new memory than you.

Loyalty members.

As we as it is.

The next generation gets to experience build a bear.

So we.

At least a few things that we are working on all the time on how do we take this opportunity and drive that low capital expansion of our experience and the right types of locations that tends to be tourist destination.

Great. Good luck for the back half.

Thanks, so much.

Thank you. Our next question is coming from David Cannon of Cannon wealth management. Please go ahead.

Good morning, congratulations excellent quarter.

Thank you David.

So a couple of questions.

We have <unk>.

So the back half of the year and for next fiscal year do you have any quote transformational initiatives.

So far.

You guys as I see it have done a better job of.

Executing on things that we've done all along is there anything new.

And what I'm, referring to would be the enhanced website that you've alluded to in the past you know that incorporates.

Virtual reality.

Components.

<unk>.

Getting into the pet gifting category.

Sure.

Crypto and Ftes.

Or if there's something that I'm missing if you could call that out.

Thanks, So much David accretion question.

We have been very focused on three initiatives firstly as we've highlighted on driving.

New strategy.

In the first initiative acceleration of the digital transformation and that's part of that yes, we're always looking for ways to engage with consumers in new and different ways and advance the interconnectivity and engagement and experience level.

<unk>.

Even on E com, because that's really the core of who we believe we are as a brand since we're often getting credit.

We're reinventing experience retail and about 25 years ago. So.

With that in mind.

Matter of fact, we actually are in soft launch of the bear builder.

Level fee, which we did announce with expected to launch this year.

Our ICR I believe in an ICR deck earlier.

This fiscal year.

It feel free you can go online right now are soft launching to make sure that we.

We pick up any of this it really it advanced.

<unk> <unk> with a lot of great partners.

So we're working through it to make sure that it is.

Seamless and exciting and fun.

You go online you can find or build a three D on your laptop desktop.

On the upper right hand corner and if you're on your song you'll have to.

Knowledge like sorry for the E Comm language on Hamburger.

Two to get it to pull up so feel free to to experience. It let me know what you think.

On the other front.

Continuing to evolve and do things transformational.

This last year 2020 was the.

That's a clear for us to have buy online ship from store buy online pick up in store buy online.

And have it delivered in the same day, so they're all a part of it and then broaden approach to initiatives, where we can meet the consumer where they want to be met and where we can meet the needs of a broader range.

<unk> of consumers, we believe that build a bear being multi generational now has the opportunity to engage with a much much broader addressable market for many more occasions and all of these different mechanisms. We believe are allowing us to be able to do that more efficiently and effectively.

The first two so really the only thing that is new in terms of potentially transformational.

The <unk> build a bear which is being launched.

Launch currently.

Doing a soft launch right now theres nothing else potentially transformative like.

The other thing.

I would mention is.

New third large national chain third party retail I would view that as transformational, but you don't have anything else like pets or.

Crypto crypto pets, crypto plush and Ftes none of that is.

<unk> currently in the pipeline for this year and next year.

So David again, you know the third party. We noted we agree with you. We believe that's very important to us I just noted on the remarks that we are all.

Always looking for good good partners.

For and <unk>.

We believe that there is continued opportunity and that is a very efficient model for us.

From a transformational perspective, we're very excited to be able to launch a brand new movie with Sony.

That is highlighting one of our own intellectual property called Honey girls with.

Multiple Grammy Award, winning artist brand new use.

Is it we believes that that has an opportunity and the continued relationship with our multi dimensional multiyear.

A deal with Sony Pictures worldwide acquisitions.

Has clearly an opportunity to be transformational as well and pushing into all of our other entertainment and content efforts and NFC.

As we noted on the last call. It is something that we're looking at.

And the SEC.

Estimate we're working with some outside companies on the assessment of the validity of that and how we would execute that with the ability within the build a bear property.

Do you have an aversion.

We're making.

Toys for pets is that something that you think is not effective use of your time or is it something that your interest to them.

David I'm, so glad that you asked that question as well I apologies for.

We're not answering.

Intermediates.

The previous response, we actually are launching a new.

Our new pet line in conjunction with our license relationship where we're not privy to speak about it in detail yet. Thank you.

Okay glad to hear that good luck.

I look forward to chatting on the next call.

Thank you once again that is star one if he would like to register a question at this time.

Okay.

Thank you. Our next question is coming from Greg Cohen of ramp Aside holdings. Please go ahead.

Hi, Sharon congrats.

That's on a great quarter.

Thank you I appreciate it.

I just have one question on capital allocation.

Bye Bye my math.

Our enterprise value is.

It is roughly 200.

$2 million.

And.

And the guidance actually seems like it might be conservative given.

The fourth quarter Khalid.

Holiday season being.

A very strong one for <unk>.

So this company.

And so given.

If valuation you know it could be as low as four times.

Our EBITDA.

And we have a significant cash balance no debt.

And it seems like our Capex is very.

Light so.

My question is do we have any plan.

Given that you return capital to shareholders in the form of buybacks or anything that would be accretive to earnings per share.

Yeah, I'll start and then.

Anything if he'd like.

We always agree I'm clearly were twice the cash balances where last year. We also pointed out that.

And some of that is nominally in time, where we have.

A few things that we're gonna have to pay to.

Bring that cash balance down payment of inventory, that's still living in some changing some pressures on the cash in the back half as well as some of our delay.

That payment but.

For the most part absolutely understand your point.

We as always work with our board of directors to assess proper capital allocation.

And look at different options on many of the things that you pointed out and as you know we have in the past implemented buyback programs.

And do you believe in and those types of programs to return shareholder value.

And I think though when there is a note that I am.

Included in the prepared remarks.

As of this moment with some of the additional wrap up with Covid.

Covid issues do we do want to say.

Right.

Very fiscally responsible until we understand exactly what is the what's in the future what the future holds and I think that we all learn.

If we are.

I think we can agree that it's very difficult to predict how these types of things.

They unfold and we all have our recommendations and all of our key.

Current even our changes in our guidance.

Isolating.

Any ongoing or acute COVID-19 impact.

So we didn't really want to stay prudent on that.

And I don't know if there's anything you want it you covered it really well.

Okay, Great. That's helpful and I guess kind of a second question is a follow up to that would be.

You know obviously that the.

The stock prices.

Two components right.

Earnings per share EBITDA per share and obviously, the multiple that would be applied to that but.

And.

And I think one of the reasons why we trade at such a low multiple I mean this is this is frankly.

It's one of the.

The cheapest stocks I think in the entire stock market and when you layer on.

The significant growth that we're seeing the significant profitability the significant margin improvement.

And all of these.

These good news good factors, it's actually.

Shocking that we're trading at such a cheap price and I guess.

My question is why do you think that is.

I think one of the other callers alluded to the fact that.

We haven't made.

At least any public announcements and some of the more progressive.

Forward thinking.

Digital monetization tools such as in Ftes.

Which youre seeing in and something similar consumer brands, obviously, Playboy being one funko being another.

So that's just my personal.

All you because otherwise I can't figure out why we're trading at such a cheap multiples.

I'm curious how what would you think about why the market is sort of under valuing the company or misunderstanding.

The significant.

Value capture opportunity are at these levels. Thanks.

Yeah again, I'll I'll start with this then open it up really well you know first I think that the market looking for consistency and deliver both and yeah. We have had a goal for many years that are driving them.

Staying profitable growth and so I think a lot of companies have been somewhat.

The challenge we've had some issues with that over the past few years that you know whether that's with the <unk>.

Cause contraction as the traffic to the mall base.

Nowadays retailers and we've had to go through this.

Really dramatic transition of our retail evolution ecommerce.

Commerce evolution, you have to rebuild our entire infrastructure to get to this particular point.

And now you're starting to see that consistency I mean, you're also starting to see some revenue growth, which I know that that has been something that the investors have been looking for so we're really.

Excited about that is we believe we're expanding the potential addressable market as I shared with you and also being able to get that addressable market to have a longer lifetime value. So there's multiple levers.

Second piece of that on multiple fronts.

We believe that.

There are.

Our evolution to be more of a branded intellectual property company versus quote unquote, just a retailer should be able to drive a tour.

A higher multiple range if you look at like company.

That is the endeavor into a lot of the three.

Entertainment and content types of business, where there is a different approach on how intellectual property values. So you know I think we're just square.

Where we have to show that consistency.

And we need to be able to provide some proof points of this.

Hypothesis, even though we believe we've shown some proof points and the hypothesis I belief that the consistency on top of that would likely provide some data that perhaps could provide a little more.

Print investment community on the upfront point so.

Great question and again over the last several years, we have done a lot from the transformation perspective, and diversification, especially as we think about our web business and you know like Lin Chen and I joined the company as our vet business supposed to like in low single digits as a percentage of total revenue now are about demand it's a.

A significant portion so even when we are talking about diversification of revenue channels significant change when you think about.

Third party revenue and getting that asset light model a bit different multiple different valuation definitely that's been one of the big area of focus for us.

As Sharon talked earlier about the entertainment all of these different revenue streams do have different multiples, but again, that's still the biggest chunk of our revenue is coming from the.

Retail stores and Thats, probably partially a reason for some of those valuations, but we are working and we are as we mentioned exploring.

Flooring some of those opportunities that were presented and you know we are looking forward to be sharing more information at the appropriate time, but we definitely are looking for ways to expand and really create some of that.

Momentum in these different channels.

And as you pointed out.

Over the last few years like our Capex has been managed to be managing our expenses. We are seeing this revenue growth from different channels and our flow through to the bottom line has been strong and.

We definitely expect.

Some of that has to be realized by the investment community.

Months and years to come.

Okay. Thank you.

Thank you we do have one follow up question coming from David Cannon of Cannon wealth management. Please proceed with your follow up question.

Yes.

Some.

Retailers are talking more about.

And you alluded to this being an omnichannel.

Company, and giving people product the way they want it whether it's buy online pick up in store visiting the store E com or and this is the new thing that I wanted you to.

Add some color to is same day delivery.

You know it seems like the market is starting to figure out that in a way it brick and mortar retailers actually have an advantage over a pure play E Commerce company using.

The brick and mortar store essentially has a DC or or warehouse, if you will and being able to deliver to people.

Same day can you talk a little bit about your strategy. There of I saw an announcement with shipped are there other partners and how specifically are you going to market that and is that an advantage for you.

So yes, you are correct that the initiatives we started late last year.

I think we signed the deal in December of 'twenty 'twenty definitely that was an extension of that buy online ship from store pickup in store and as Sharon talked about earlier.

Expanding our capabilities and providing our guest with whichever option that would like to engage with.

The brand this is.

One of those areas, where we believe it's a big opportunity, especially around holidays, when we do have compressed delivery times and.

Time been those shipping from in the past one focal point of our Ohio warehouse. So definitely as you get closer to holidays. This provides us with.

With tremendous optionality.

To provide that product and be part of the consideration set.

As guest stock price.

These orders. So this last mile program and things that you can kind of like the buzz in the industry is definitely one of those big error.

As you know we are spending a lot of time and energy <unk>.

We believe it's a big opportunity.

Still relatively new but it's definitely one of those things that's differentiating us.

<unk> experienced as quickly as possible to our guests it's critical.

I think the.

Yeah.

Dovetails nicely David.

Our discussion about getting as well.

So the gifting side of that.

Where our two largest holiday whether that Christmas or Valentine's.

Those last few days are important to consumers and that same day delivery.

They can be very critical for us.

Okay.

<unk> opportunity.

And the final moment.

Providing I guess my last one.

Have you specifically marketed that service up until this point and if not do you see yourself putting.

$3 behind that initiative.

We have marketed it.

To continue to do so, especially at the last days of holiday just like it because we believe there's a big opportunity there.

To meet.

B, which would have otherwise been lost sales.

Okay.

Just out of curiosity do you agree.

In the past being a brick and mortar retailer was perceived as an albatross that perhaps in the marketplace.

People are beginning to rethink it and possibly perceive brick and mortar retailers that have.

Focus.

Pat.

As well as same day delivery as potentially disrupting pure play E. Commerce companies, just curious of your thoughts on that.

And I don't want to speak.

One elderly, but I'll certainly tell you that we have always believed that well run profitable.

He co location or an asset not an anchor for build a bear is the virtuous circle that we're creating in our relationship with the consumer where they created really memorable experience and have great brand affinity for us it's proven over time, our affinity numbers sorry, they get some of that back.

Retail companies today, and it is coming from that experience that they have and now we can solve those 300 some odd locations.

Too many warehouses as you say and small deliver b delivery pool point, and yes that is a tremendous asset for us.

Thank you, ladies and gentlemen at this time I'd like to turn the floor back over to management for closing comments.

Thanks for everyone.

Yesterday, we appreciate it and move it forward.

<unk> is seeing everyone on our third quarter call.

Ladies.

Okay. Thank you for your participation and interest in today's build a bear event. You may disconnect. Your lines are log off the webcast at this time and enjoy the rest of your day.

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Greetings and welcome to the build a bear workshop second quarter of fiscal 2021 earnings Conference call.

At this time all participants are in a listen only mode a question and answer session.

The formal presentation. If you would like to ask a question. Please press star one on your telephone keypad, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Ms. Allison Malkin.

And with ICR. Thank you. Please go ahead.

Good morning, Thank you for joining us today with me are Sharon price, John CEO and <unk> to a floor of itch CFO for today's call Sharon will begin with a discussion of our second quarter fiscal 2021 performance and our outlook for the year after.

Bob will review the financials and guidance in more detail. We will then open the call to take your questions. We ask that you limit your questions to one question and one follow up this way we can get to everyone's questions. During this one hour call feel free to re queue. If you have further questions members of the media, who maybe on our call.

Today should contact us after this conference call with your questions. Please note. This call is being recorded and broadcast live via the Internet. The earnings release is available on the Investor Relations portion of our corporate website, a replay of both our call and webcast will be available later today on the IR site I will.

Remind everyone that forward looking statements are inherently subject to risks and uncertainties actual results could differ materially from those currently anticipated due to a number of factors, including those set forth in the risk factors section in the company's annual report on Form 10-K, we undertake no obligation to revise.

Any forward looking statements with that I would now like to turn the call over to Sharon.

Thank you Alison.

Good morning, everyone and thanks for joining us today to discuss our results for the second quarter of fiscal 2021.

I used to have delivered the highest profit in our history for second quarter coming on the heels.

<unk> of our record setting profit in our first quarter Accordingly in fiscal 2020. One thus far we have achieved the highest profit for first half and our company nearly 25 year existence.

We believe these results reflect momentum that has been building from the execution of our stated strategy.

<unk>.

Adapt to a rapidly evolving environment and ability to accelerate key initiatives to drive sustained profitable growth, while recognizing that the business is also benefiting from pandemic related factors, such as pent up demand and stimulus funds.

I continue to be proud of our team across all areas from.

Corporate where we continue to work from a virtual environment to our store associates enthusiastically engaging with our guests and to those working in our warehouses to move inventory and fulfill orders our associates have remained nimble and dedicated to our mission to add a little more heart July.

While we remain appropriately.

82 cautious given the uncertainty of course changes due to COVID-19, and its impact on consumer mobility in the supply chain, we began third quarter with continued strength.

We're excited about the opportunities that lie ahead to continue our favorable performance in the second quarter in the second half of the year, which does reflect.

Lately the upward revision in annual guidance that was announced this morning.

The quarter's results were outstanding.

Total revenues were $94.7 million up 135% from 2020 and up almost 20% from the fiscal 2019 second quarter, reaching the highest level in over a decade.

Let's see their brick and mortar stores were predominantly temporarily closed last year. So the comparisons to 2019 isn't relevant showing the strength that is coming from this channel, including the benefit from our enhanced omni channel capabilities, such as buy online and either ship from store or pick up in store or same day delivery with.

They ship with ship.

While ecommerce demand was up by 159% over 2019 digital demand declined by 28% compared to fiscal 2020.

While we had previously noted and anticipated a decline in our prior year's digital demand, which had been buoyed by temporary store closures.

<unk> and the online exclusive launches of some powerful license properties. The decrease was greater than expected driven by disruptions in the supply chain and delayed launches of select e-commerce products.

Second quarter gross profit margin improved by 53, 2% of total revenue.

Our higher margin reflects the benefit of ongoing lease negotiation leverage of fixed occupancy expense and a triple digit expansion in merchandise margin compared to 2019.

And we delivered pre tax income of $9.5 million.

The highest pre tax profit in the second quarter in our companies.

An improvement of over $20 million from the loss, we incurred in last year's second quarter, and an increase of over $10 million from the fiscal 2019 second quarter.

As we've previously shared we remain focused on our strategic priorities for the year, which are centered on three key areas.

<unk> further acceleration of our digital transformation, including content and entertainment initiatives.

Rapidly evolving our retail capabilities and experiences, including Omnichannel and significant expansion of our e-commerce capacity and.

And finally, leveraging our solid financial position include.

On balance sheet to support our business and enable us to make strategic investments designed to drive further growth and increase shareholder value.

Regarding the acceleration of our digital transformation, we are intent on building our business with more effective use of technology and improved and enhanced fulfillment.

Adding a stroke mobility, while leveraging our expanded digital platform to inform and drive marketing and content efforts.

We believe that the positive multi year e-commerce demand trajectory that we have achieved demonstrates that we are making progress in this area.

In the second quarter, we continued to leverage gifting.

Moments and occasions, including mother's day father's day as well as graduation, and just because.

We believe our investment in an expanded digital platform is enhancing our ability to diversify and grow consumer segment. During these multi generational gifting opportunity.

We continue to invest in platforms to expand our capability to fuel demand across all channels. We.

We are driving positive sales results through new and enhanced use of cloud based technology that we initiated in 2020 and continue to refine.

We are able to more effectively target new guests to drive.

Initial transaction as well as connect with existing guests by providing personalized offerings.

On individual buying an engagement habits.

As we continue to focus on accelerating our digital capabilities. We recently invested in an additional loyalty suite with Salesforce, which we expect to allow us.

To further leverage our millions of active bonus club members to drive repeat visits and increase household lifetime value as well as that new members to the database.

We expect to implement this new technology by early next year.

In addition, we continue to use digital media content and entertainment is marketing.

Hitting in brand building to engage consumers and drive sales both online and in our stores.

We look forward to the upcoming launch of our new live action feature films Honey Girls Dara Grammy Award, winning Multiplatinum artist Ashanti and digital media Star test that broke.

The movie inspired by our.

Our historically successful top selling honey girls product line is expected to be released in late October in conjunction with Sony worldwide Pictures acquisition.

We plan to leverage the buzz and interest to drive demand and affinity for an updated range of merchandise as.

As well as feed traffic to shop.

Both online.

And in stores.

Our second initiative, which is to rapidly evolve our retail capabilities continues to show progress.

We are offering consumers more ways to connect and are meeting their changing needs by driving omnichannel engagement and expanding delivery choices.

Which we believe is contributing to our positive sales trends.

Our north American stores, and our United Kingdom stores were predominantly open throughout 2021 second quarter, while traffic continue to trail historical level, we drove higher transaction values that were approximately 20% up.

Across geographies compared to 2019.

Our results included strong sales growth in many of our tourist locations, which had been a strategic priority in the evolution of our real estate portfolio.

With this in mind, we recently opened several new stores and tourist locations.

Including <unk>.

Icon Park in Orlando Pier Park in Panama City.

And the River center, along Riverwalk in San Antonio.

In addition, we continue to leverage the strong strategic Optionality that we have maintained across our real estate portfolio with 70% of our leases.

Having a natural lease event in the next three years to give us flexibility to optimize our corporately managed locations.

Our goal is to maintain a strong store base that contributes to our overarching strategic objectives, including supporting our expanded omnichannel capabilities.

And creating memorable relationships with our guests.

We also have seen some stability returned to our third party retail model, which includes workshop at Great Wolf Lodge beaches family resort and Carnival cruise line, which recently began a staggered return to operation.

And third party retail model allows us to expand in a cost efficient manner with each partner typically funding the capital investment to open their locations. While also managing the operations of the store inventory and staffing.

As for our third priority regarding the company's financial health.

We ended the quarter in a position of strength with a strong balance sheet and cash nearly doubled from a year ago.

As it relates to our cash and strategic priorities. We continue to evaluate initiatives that will enable a more rapid acceleration of our key programs and investment opportunities to grow.

Good morning.

At this time, we have elected to maintain flexibility and optionality as we navigate newly emerging headwinds from an ongoing evolving pandemic.

As we look to the back half of the year. We are planning the annual celebration of National Teddy Bear day in September with an event that will last.

Our prior months and feature a sweepstakes that is designed to further add to our contact database and drive interest in our new product lines.

Following that we have an expanded Halloween collection, which we expect to build on the success we saw last year.

And the fourth quarter brings the highest demand is a year for gift giving products for.

The entire consumer segment.

We have a positive outlook for the back half of the year, but do not but do want to voice some caution given external macro variables, such as inflationary wage pressure and supply chain disruption.

We continue to closely monitor these issues and have made proactively.

<unk> moves, including accelerating inventory purchases.

Select price increases and updated employee recruitment and retention plan.

As we look forward to building on the success that we're seeing in 2021 in order to achieve our goal of sustained profitable growth. We remained focused on.

All of our <unk> strategy and key initiatives.

We expect our growth to be fueled by several factors, including <unk>.

Accelerating and expanding our digital transformation, giving us additional capability and enabling our company to more aggressively participate in the digital economy.

Our innovative.

On our shipping products and enhanced marketing tools, allowing us to reach a broadened consumer base more efficiently.

Our best in class license relationships that drive interest from engaged affinity segment.

Our ability to leverage a high level of lease optionality and multiple store expansion opportunities.

Gift, including diverse formats and models such as our third party retail option.

Our ability to leverage the emotional connection that consumers have for our brand, including the use of content and entertainment such as the Honey girls movie coming in October to keep interest high with consumers and finally Asahi.

<unk> financial position with a strong balance sheet to support incremental growth as we move forward.

In closing we are optimistic about our business trends with continued strength in our third party third quarter to date as I noted earlier.

We have again raised.

Solid guidance and look forward to fiscal 2021 year end.

We are pleased with the progress that we have made.

And look forward to continuing to leverage our strong brand appeal to our broad and diverse base of consumers.

Multiple channels.

Now let.

<unk> the call over to <unk> to review our financial results in more detail.

Thanks, Sharon and good morning to everyone.

We are very pleased to continue to build momentum as we delivered a second quarter profit and the highest level in our history.

Combined with our record breaking first quarter.

We were able to report the most profitable first six months ever for our company as well.

Total revenues gross profit margin and operating income showed solid improvement compared to the pre pandemic levels in the 2019 second quarter.

Further demonstrating the validity.

Let me touch strategy supported by the focused execution of key initiatives by our team.

As Sharon noted.

We look at the balance of the year, we are appropriately cautious given the uncertain path of COVID-19, and potential headwinds stemming from supply chain disruptions.

However, our.

Of our first half performance and continuing positive trends give us the confidence to further increase our guidance for total revenues and EBITDA for the 2021 fiscal year, which I will discuss in more detail in just a minute.

First let me give more detail for our second quarter results.

<unk> include comparisons to both the 2020 in 2019 second quarters due to temporary COVID-19 related store closures last year.

Total revenues were $94.7 million, 835% increase compared to the second quarter of fiscal 2020.

In the 19, 6% increase compared to 2019.

We are pleased to see the strong growth partially fueled by pandemic related factors, but we believe also reflects the ongoing affinity that customers have for our brand and their desire to engage in hands on and personal experiences.

Our sales growth was primarily driven by an increase in average transaction value, which grew over 20% in North America compared to the 2019 second quarter.

<unk> reached the highest level for the second quarter across geographies.

Gross profit margin.

<unk> of 53, 2% was significantly higher than the prior year's results of 18, 7% and 44, 1% in the second quarter of fiscal 2020 in fiscal 2019, respectively.

The strong growth in total revenues allows us to leverage fixed.

Competency expense, which benefited from a renegotiated lease terms, which started to take effect in 2020.

Our merchandise margin also expanded driven by both lower discounting and higher markup rates on certain products as we selectively raise prices.

Stocks to mitigate ongoing supply chain and inflationary pressures that we anticipate being headwinds for the foreseeable future.

SG&A dollars increased compared to both the 21% in 2019 second quarters. However.

However, SG&A as a person.

<unk> of total revenues improved to 43, 2% versus 53, 3% last year and 45, 1% in 2019.

The increase in SG&A dollars compared to prior years was driven by higher store labor expenses given the reopening.

Mrs locations and expanded operating hours.

We also recorded full corporate salaries this year as opposed to fiscal 2020 with pandemic related cost containment initiatives included temporary wage reductions.

In addition, the change in SG&A reflects an increase.

<unk> in variable costs, driven by sales growth initiatives inclusive of higher marketing spend and funding a performance incentive programs.

Notably we delivered the highest second quarter pre tax profit in our company's nearly 25 year history of nine.

Opening $5 million.

This compares to a pretax loss of $14 million in the prior year quarter and to a pretax loss of 742000 in the second quarter of fiscal 2019.

Accordingly, with record breaking first and second quarter profit.

A very successful first half for.

For the first six months of fiscal 2021.

Total revenues were $186.4 million, an increase of 114% compared to the first six months of fiscal 2020, and 14% versus the first six months of.

<unk>.

Pretax income was $22.7 million an improvement of over $15 million from the pre tax loss recorded in the first six months of fiscal 2020.

And $21 million increase compared to the first six months of fiscal 2019.

<unk> 2009, and EBITA was $28.8 million, an increase of $55.3 million compared to the first six months of fiscal 2020, and an increase of $19 million compared to the first six months of fiscal 2019.

Turning to the balance sheet.

Ended.

Good quarter, good cash and cash equivalents of $51.1 million with no borrowings on our credit facility.

Our cash balance is somewhat inflated from timing of inventory receipts and capital expenditures at.

At quarter end inventory was down $8 million.

The SEC reduction of 14, 4% from last year's second quarter.

We have proactively proactively accelerated the timing of our placements and increased quantities for core products and evergreen merchandise collections to support our business momentum in this part of our efforts to mitigate ongoing.

<unk> changed the structures.

Assuming no additional material COVID-19 impact either in factories.

<unk> consumer sentiment or store operations, we are targeting to have increased inventory levels compared to the fiscal year ends of both 2020 in 2019.

<unk> support.

To meet our anticipated business needs.

In addition, our use of capital will continue to focus on investments supporting initiatives that are expected to generate a strong return in support of our strategy.

For the first half of the year, our capital expenditures were $1 six.

<unk>.

And we continue to expect to invest close to $10 million on a full year basis again, assuming there are no additional significant COVID-19 related disruptions or delays in availability of goods and services.

Also as our performance expectations in Peru, we are.

We're anticipating making cash tax payments this year.

Based on our strong second quarter performance and positive trends VR.

We are raising our guidance for total revenues and EBITDA for fiscal 2021 as compared to what we shared in conjunction with our first quarter earnings release of May 'twenty.

Specifically, we currently expect total revenues to be in the range of $375 million to $385 million, which represents an increase from our previous guidance for fiscal 2021 total revenues to exceed fiscal 2019 coal revenues of $338.5 million.

Yeah.

And EBITDA to be in the range of 45 million to $15 million, an increase from our previous expectation for EBITDA in the range of $28 million to $32 million.

In addition, we continue to expect depreciation and amortization.

They should be in the range of $13 million to $14 million.

As it relates to our third quarter as noted in this morning's press release sales trends have remained strong and we expect total revenues to exceed both 2020 in 2019 levels.

That growth is coming.

Coming from the recapture of sales in our physical stores, which as I have noted, but partially closed last year.

We expect our third quarter e-commerce demand to remain flat with last year's third quarter, while still representing a triple digit increase over 2019.

We expect to have higher.

Higher overall expenses driven in part by higher payroll and marketing costs, resulting from temporary reductions in last year's third quarter to mitigate COVID-19 closings.

The third quarter is generally our smallest quarter of the year and this is and as historically as it could totally historically typical.

Typical we currently expect to have a pre tax loss in the period.

Our full year guidance assumes no additional significant negative impact from the pandemic.

<unk> prolonged store closures due to government mandates.

Please keep in mind.

While we expect to see annualized savings from expense reduction initiatives implemented in fiscal 2020, our guidance includes the impact of higher payroll and marketing expenses to support the current business can drive growth.

Accordingly, our guidance also reflects funding of performance based incentive programs.

As well as projections or inflationary pressures.

Product trade to minimum wage increases.

In closing we are pleased with our record setting first six months and our momentum so far in the third quarter.

We remain focused on accelerating.

The execution of key strategic initiatives.

And we are confident.

We are in a position to achieve our goal of long term sustained profitable growth.

This concludes our prepared remarks, and we will now turn the call back over to the operator for questions operator.

Thank you the floor is now open.

Fair question.

I'd like to ask a question. Please press star one on your telephone keypad at this time I'll confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing.

Pressing the star keys.

You ask you please limit yourself to one question and one follow up.

That is one star one to register a question at this time.

First question is coming from Eric Theater of FCC Research. Please go ahead.

Good morning, congratulations on a great quarter.

Thank you Eric Thanks, Eric.

When you look at.

Okay.

Such as differently.

You've obviously picked up a lot of customers here and there was tremendous pent up demand from Covid.

How do you feel about how would you feel about converting that first time customer.

Many time customer calling forward, how do you look upon that as the opportunity here.

Yeah. Thank you for that question, Eric and you are correct as we noted in the prepared remarks, we do believe that this is a combination.

Factors that are driving its growth, yes, there is some impact.

<unk>, the pent up demand from stimulus funds.

But we do believe that some of the fundamental changes that we've made in the business from infrastructure, particularly at <unk>.

Technology e-commerce opening up our ability to ship from stores.

Just what was implemented over the course of years and interestingly, we flipped the switch on the final portions of some of this with warehouse management system and then you've got Salesforce relationship in February of 2020.

All of that has enabled us to.

Mark.

Yes.

Manage this in a very interesting way.

Almost.

And our gift deck. So yes people are coming back into our stores that we have underway to capture and enhance that relationship with them.

And new opportunities whether its journey.

Or.

Loyalty program to Reengage them to drive that lifetime value Yeah to answer your specific question with all of that background.

It depends is the answer some of the more traditional consumers that we have that might be in the 60% that are 12 and under.

We will use a lot of our traditional ways and know what they shop for before why they got and why they came into build a bear for the first time, how do we engage with them based on.

What what property they may have purchased or our win there perhaps even if they provided this information through our loyalty.

Later, when their next birthday, yet on the adult side, the 12, plus the 40% that our teens tweens and adults that are shopping on that really depends on some of the affinity product.

Therefore example, a pokemon plan, it's highly likely that they will be engaged with that.

A lot.

A lot of data about the Collectability of that particular line. If they are engaging with us in some of the gifting programs adult to adult gift game.

Yes.

We're still learning and evolving on how we then get them to engage with us in the next gifting opportunity.

Working tissue.

To shift in the mindset of.

Build a bear as an optional gift.

For a wide variety of reason.

That's a lot of our internet efforts that we're making to push build a bear as an option.

A competitor within a competitive realm of other natural <unk>.

<unk> opportunity.

Interestingly this past year.

Because people were separated build a bear has served as a <unk> I.

I mentioned in the remarks, I just cause gift.

People wanting to reach out and spend a little bit of heart to someone and let them know that they.

We're thinking about them.

And we believe that that is a big opportunity for us going forward.

Great and just a follow up here so the third party business.

National franchising those seem to be a little bit more of a lagging indicator.

Cater then kind of what youre seeing at the stores should we be thinking about going forward. There are those opportunities to really become much more.

As COVID-19 stays the way it is much more.

Something more aggressively to pursue.

Yes.

They start to ramp up once again.

Yes.

Bit bifurcated, Eric Great Wolf Lodge is tracking not that differently.

The rest of our fleet.

Carnival cruise lines for obvious reasons.

It's just now sort of getting the staggered launch up and running but COVID-19 aside the third party retail opportunity.

<unk> is we believe quite quite advantageous for them.

On a number of fronts.

The least of which is the lower capital required to roll out new locations and create new guest and he memory then you loyal.

Loyalty members.

<unk>.

As we as it is.

The next generation get to theory build a bear.

So we have a few.

Few things that we are working on all the time on how do we take this opportunity and drive that low capital expansion of our experience and the right.

Types of locations with tend to be tourist destination.

Great. Good luck for the back half.

Thanks, so much thanks.

Thank you. Our next question is coming from David Cannon of Cannon wealth management. Please go ahead.

Good morning.

Congratulations excellent quarter.

Thank you David.

So a couple of questions first for.

So the back half of the year and for next fiscal year do we have any quote transformational initiatives.

So far.

You guys.

As I see it have done a better job of.

Executing on things that we've done all along is there anything new and what I'm, referring to would be the enhanced website that you've alluded to in the past that incorporates.

Virtual reality.

Components potentially.

Getting into the pet gifting category and door crypto and Ftes.

Or if there's something that I'm missing if you could call that out.

Yeah.

Thanks, So much David accretion question.

And.

We have been very focused on three initiatives firstly as we highlighted on driving our strategy in.

In the first initial acceleration of the digital transformation and that's a part of that yeah. We're always looking for ways to engage with consumers.

First in new and different ways and advance the interconnectivity and engagement and experience level even on E com.

Does that really the core of who we believe we are as a brand since we're often getting credit for.

We're reinventing experience retail almost.

25 years ago. So.

With that in mind.

And in fact, we actually are in the soft launch of the bear builder <unk>, which we did announce what they expected to launch this year.

On our IPR I believe in an ICR deck earlier.

This fiscal year.

And.

Feel free to go online right now are soft launching to make sure that we we pick up any of this it really is an advanced technology with a lot of great partners. So we're working through it to make sure that it is seamless and exciting and fun. If you go online you can find the variability.

On your laptop desktop.

On the upper right hand corner and if youre following you'll have to.

I have to click sorry for the.

E Comm language on Hamburger.

To get it to put a lot so feel free to experience. It let me know what you think on.

Three D front.

Continuing to evolve and do things transformational.

This last year 2020 was the first year for us to have buy online ship from store or buy online pick up in store buy online and.

And and have it delivered in the same day, so if they're all a part of that broadened.

On the other two initiatives, where we can meet the consumer where they want to be met and where we can meet the needs of a broader range of consumers. We believe that build a bear being multi generational now has the opportunity to engage with a much much broader addressable market for many more occasions.

All of these different mechanisms, we believe are allowing us to be able to do that more efficiently and effectively.

Oh.

Okay, So really the only thing that.

As new term that potentially transformational as the <unk> build a bear which is being.

La launch currently Youre doing a soft launch right now theres nothing else potentially transformative like another thing.

I would mention is a new third large national chain for third party retail I would do that is transformational, but you don't have anything else like pets.

Or.

You know crypto crypto pets, you know crypto plus N F. T is none of that is currently in the pipeline for this year and next year.

So David again, you know the third party. We noted we agree with you we believe that it's very.

Important to us I just noted on the remarks that we are always looking for good good partners.

We believe that there is continued opportunity and then its a very efficient model for us.

From a transformational perspective, we're very excited to be able to launch a brand new movie.

Movie with Sony.

That is highlighting one of our own intellectual property honey girls with.

Multiple Grammy Award, winning artist brand New music.

We believe that that has an opportunity and the continued relationship with our multi dimensional multiyear.

Deal with Sony Pictures worldwide.

<unk> acquisition.

Has clearly an opportunity to be transformational as well pushing into all of our other entertainment and content.

And in F. T. As we noted on the last call. It is something that we're looking at.

And the assessment, we're working with some outside companies on the assessment of.

Invalidity of that on and how we would execute that with the within the build a bear property.

Do you have an aversion to making.

Toys for pets is that something that you think is not effective use of your time or is it something that your interest.

Okay.

David I'm. So glad that you asked that question as well I apologies for pernod answering in the in the previous pre.

Previous response, we actually are launching a new.

Our new pet line in conjunction with our license relationship where we're not Privy.

Maybe you can speak about it in detail yet thank you.

Okay glad to hear that good luck and.

Look forward to chatting on the next call.

Okay.

Thank you once again that is star one if he would like to register a question at this time.

Okay.

Thank you. Our next question is coming from Greg Cohen of ramp beside holdings. Please go ahead.

Hi, Sharon congrats on a great quarter.

[noise]. Thank you really appreciate it.

I just have one question on capital allocation.

Occasion.

By by my math.

Our enterprise value is.

It is roughly $250 million.

And.

And the guidance actually seems like it might be conservative given the.

The fourth quarter holiday.

Holiday season being.

A very strong one for <unk>.

So this company.

And so given the valuation could be as low as four times.

<unk> EBITDA.

And we have a significant cash balance no debt.

And it seems like our Capex is.

Very good.

Right so.

My question is do we have any plans to return capital to shareholders in the form of buybacks or anything that would be accretive to earnings per share.

Yeah, I'll start and then.

Okay.

Anything he bike yeah, we agree I'm clearly were twice the cash balance this with where last year. We also pointed out that some of that is moment in time, where we have a.

A few things that we're gonna have to pay to.

Bring that cash balance down payment of inventory.

Living in some changing some pressures on the cash in the back half as well as some of our delayed.

Delayed rent payments, but for the most part absolutely understand your point, we as always work with our board of directors to assess proper capital allocation.

And look at different options on many of the things that you pointed out and as you know we have in the past implemented buyback programs and they believe in and those types of programs to return shareholder value.

And I think though when there's a note that I am.

Included in the prepared remarks.

As of this moment with some of the additional wrap up with.

Covid issues do we do want to say I'm very.

Very fiscally responsible until we understand exactly what is the what's in the future what the future holds and I think that we all have learned.

If we are.

I think we can agree that it's very difficult to predict how these types of things.

Unfold and we all have our recommendations and all of our.

Current even our changes in our guidance.

Are isolating.

It's ongoing.

Ongoing or acute COVID-19 impact.

So we really want to stay prudent on that front and I don't know if there's anything you want to talk to you covered it really well.

Okay, Great that's helpful.

And I guess kind of a second question is a follow.

Any of that would be.

Obviously the.

The stock prices has two components right.

Earnings per share EBITDA per share and obviously, the multiple that would be applied to that.

And.

Follow up to <unk>.

And I think one of the reasons why we trade at such a low multiple I mean this is this is frankly one of the the cheapest stocks I think in the entire stock market.

And when you layer on.

The significant growth that we're seeing the significantly.

And the ability of the significant margin improvement.

And all of these.

These good news good factors, it's actually.

Shocking that we're trading at such a cheap price and I guess.

My question is why do you think that is.

I think one of the other.

Callers alluded to the fact that.

We haven't made.

At least any public announcements and some of the more.

Regressive.

We're thinking.

Digital monetization tools such as in Ftes.

<unk> approach, you're seeing something similar consumer brands.

Obviously, playboy being one funko being another.

So that's just my personal.

View, because otherwise I can't figure out why we're trading at such a cheap multiples.

I'm curious how you think about why the market is sort of under valuing.

Company or misunderstanding.

This significant.

Value capture opportunity at these levels. Thanks.

Yeah, again, I'll I'll start with this and opening up going well you know first I think that the market looking for consistency and deliver both and we.

We had a goal for many years as the driving sustained profitable growth and I think a lot of companies have been somewhat challenged we've had some issues with that over the past few years that you know that with the significant.

Contraction as the traffic to them all day.

At.

All based retailers and we've had to go through the really dramatic transition of our retail evolution ecommerce evolution and you have to rebuild our entire infrastructure to get to this particular point.

And now you're starting to see that consistency.

So starting to see some revenue growth, which I know that that has been something that the investors have been looking for so we're really excited about that is we believe we're expanding the potential addressable market as I shared with you and also being able to get that addressable market to have a longer lifetime.

And you're all value. So there's multiple levers the second piece of that on multiple fronts.

We believe that.

That our evolution.

To be more of a branded intellectual property company versus quote unquote, just eight retailer should be able to drive.

What kind of toward a higher multiple range. If you look at like company.

That is the endeavor into a lot of its retail entertainment and content types of business, where there's a different approach on how intellectual property values. So yeah.

Drive that or just where we are.

We have to show that consistency.

And we need to be able to provide some proof points of this hypothesis, even though we believe we've shown you some proof points and the hypothesis I belief that the consistency on top of that.

We'd likely provide.

I think data that perhaps could provide a little more confidence.

Confidence from the investment community on both fronts.

Yeah, So great question and again over the last several years, we have done a lot from the transformation perspective, and diversification, especially as we think about our web.

This and you know like Lin Chen and I joined the company as our web business was like in low single digits as a percentage of total revenue now our web demand. It's a significant portion so even when we are talking about diversification of revenue channels significant change when you think about.

Part of your revenue.

<unk> and getting that asset light model a bit different multiple different valuation definitely.

That's been one big area of focus for us.

<unk> talked earlier about the entertainment all of these different revenue streams do have different multiples, but again, that's still the biggest chunk of.

Our revenue is coming from the.

Retail stores and Thats, probably partially a reason for some of those valuations, but we are working and we are as we mentioned exploring some of those opportunities that were presented and you know we are looking forward to be sharing more information then at the appropriate time, but we definitely.

Italy are looking for ways to expand and really create some of that.

Momentum in these different channels and as you pointed out over last few years like our Capex has been managed to be managing our expenses. We are seeing this revenue growth from different channels and our flow through to the bottom line has been strong.

<unk> and <unk>.

We definitely expect.

Some of that has to be realized by the investment community.

In months and years to come.

Okay.

Okay. Thank you.

Thank you.

You have one.

Follow up question coming from David Cannon of Cannon wealth management. Please proceed with your follow up question.

Yeah.

Some.

Retailers are talking more about.

And you alluded to this being an omni channel.

The company and giving people product.

One the way they want it whether it's buy online pick up in store visiting the store E com or and this is the new thing that I wanted you to.

I have some color too is same day delivery.

It seems like the market is starting to figure out that in a way brick.

But our retailers actually have an advantage over a pure play E Commerce company using the.

The brick and mortar store essentially has a DC or or warehouse, if you will and being able to deliver to People's same day can you talk a little bit about your strategy. There of I saw an announcement with shipped.

And more other partners and how specifically are you going to market that and is that an advantage for you.

So yes, you are right that the initiatives. We started late last year I think we signed the deal in December of 'twenty 'twenty definitely that was an extension of that biomarker.

Are there ship from store pickup in store and as Sharon talked about earlier.

Expanding our capabilities and providing our guests with.

Each have their option they would like to engage with.

The brand. This is one of those areas, where we believe it's a big opportunity, especially around holidays when.

<unk> do have compressed delivery times.

Time been those shipping from in the past to one focal point of our Ohio warehouse. So definitely as you get closer to holidays. This provides us with tremendous optionality.

To provide that product and be part of the consideration set.

<unk>.

As guests.

These orders. So this last mile program and things that you kind of like the buzz in the industry is definitely one of those big areas that we are spending a lot of time and energy.

We believe it's a big opportunity.

Our relatively new but it's definitely one of those things that are differentiating us providing that experience as quickly as possible to our guests. It's critical that I think they are.

This dovetails nicely David.

Our discussion about gifting as well so.

And the gifting side of that.

Two largest holiday whether that Christmas their Valentine.

That was last few day are important to consumers.

And that same day delivery can be very critical for us to.

Sales opportunity.

So the final moment.

Providing I guess my last one.

Have you specifically marketed that service up until this point.

And if not do you see yourself, putting some dollars behind that initiative.

We have marketed it.

To continue to.

And especially after the last days of holiday because we believe there's a big opportunity there for them to meet.

B, which would have otherwise been locked down.

Okay.

Out of curiosity do you agree.

In the past being a brick and mortar retailer was.

<unk> done an albatross that perhaps in the marketplace.

People are beginning to rethink it and possibly perceive brick and mortar retailers that have you know.

Focus E com.

As well as same day delivery as potentially disrupting pure play E com.

Just curious of your thoughts on that.

And I know when I speak with.

Everyone else, Italy, but I'll certainly tell you that we have always believed that well run profitable.

Retail location or an asset not an anchor for build a bear.

It's a virtuous circle.

Creating and that relationship with the consumer where they created really memorable experience and.

Have great brand affinity for us it's proven over time, our affinity numbers they get some of the best known kit companies today and it is coming from that experience that they have and now we bought those 300.

Some applications.

And too many warehouses as you say and small deliver b delivery pool point, and yes that is a tremendous asset for us.

Thank you, ladies and gentlemen at this time I'd like to turn the floor back over to management for.

For closing comments.

Thanks for everyone joining us today, we appreciate it and we look forward to seeing everyone on our third quarter call.

Ladies and gentlemen, thank you for your participation and interest in today's build a bear event you may disconnect.

Your lines or log off the webcast at this time and enjoy the rest of your day.