Q4 2022 Build-A-Bear Workshop Inc Earnings Call
[music].
Greetings and welcome to the build a bear workshop fourth quarter 2021 earnings call.
At this time all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
And please note that this conference is being recorded.
I'll now turn the conference over to your host Allison Malkin with ICR. Thank you you may begin.
Good morning, Thank you for joining US with me today are Sharon John CEO , and Boynton mortgage CFO for today's call Sharon will begin with the discussion of our fourth quarter and fiscal 2021 performance and the priorities. We have set as we began fiscal 2022 after boy movie Theater.
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.
They should contact us after this conference call with your questions. Please note the 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.
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 and now I would like to turn the call over to Sharon.
Good morning, and thank you for joining us today.
Fiscal 2021 came to a close we were thrilled to kick off our year long celebration of build a bear's milestone 25th anniversary on the hills of the most profitable year in the company's history.
Today, we will reflect on the record breaking results from 2021, which were achieved while navigating through the challenges volatility and uncertainty of a global pandemic and provide an update on the strategy that contributed to our positive outcome.
We will also share a few details about newer initiatives that we're working on for 2022.
First it's important to note that the advancements. This company made in 2021 reflect the successful execution of a multifaceted strategy that is required years of planning and investment.
The model, what's primarily envisioned to elevate and monetize our iconic brand while evolving the company into a digitally driven diversified omnichannel entity enhanced by a dynamic and efficient vertical retail tainment present.
With many of the building blocks now in place we believe build a bear is fundamentally different than it was when we began this process.
Even prior to Covid in fact, many of the necessary changes and transformative initiatives actually accelerated during the pandemic.
Additionally, we believe these efforts have provided the company with a platform for a compelling future as we continue to leverage and build on these new capabilities with the goal of creating ongoing shareholder value.
To achieve this transformation this leadership team initiated and led why scale long horizon effort designed to evolve the company both during and in response to a variety of external pressures, including changes in consumer shopping habits, resulting in a rapid rise in the.
Digital economy, and shifting mall traffic patterns.
Systematically invested in and executed plans to improve operations and profitability, including.
And organizational restart structure and acquisition of new talent aligned with the strategic objectives, and I T infrastructure and systems overhaul sweeping supply chain improvement with sourcing diversification. The addition of a new warehouse management system.
Relaunch and expansion of the e-commerce side and back in to include Omnichannel capabilities.
A relaunch of our valued loyalty program, a significant shift to digital marketing and content as consumer communication tool and rationalization renegotiation and evolution of the store fleet, resulting in a significantly improved four wall contribution.
While we have acknowledged that there is likely some accretive impact from the pent up demand and government stimulus. We believe the majority of our positive results. This year are due to the cumulative effect of the strategic advances that we were just noted.
With that in mind, our fiscal 2021 financial highlights include <unk>.
Total revenues of $411 $5 million, an increase of over 60% compared to fiscal 2020 and more than 20% versus fiscal 2019.
Growth in digital demand to a record level of $73 million with a penetration of nearly 20% of net retail sales.
Pre tax income of $57 million.
Beating the upper end of the range of our most recent guidance.
As noted this is the highest pre tax income in our company's nearly 25 year history and compares to a pretax loss of $22 million in fiscal 2020, and a pretax income of $1 $6 million in fiscal 2019.
And we ended the year with cash and cash equivalents of $32 $8 million, putting us in a strong position to continue to fund strategic capital investments.
Note that this position is reflective of the fourth quarter $20 million special cash dividend paid to our shareholders and the repurchase of over $4 million of our shares associated with the recently announced stock buyback program.
With this proven strategy and continued momentum in 2022 quarter to date, we intend to remain focused on accelerating and expanding our key initiatives.
We leveraged the excitement that comes with our 25th anniversary celebration plant.
Build a bear is beloved and well known with earned multi generational appeal since.
Since the company was launched we have sold over 200 million furry friend and have remained relevant by capturing many popular interests of a broad range of todays consumers, including a desire for collectability experience personalization and DIY or through collaborations with.
Other powerful brands to broaden our popularity beyond the core consumer.
Additionally, we are proud that build a bear is importantly also recognized as an authentic and trusted brand that is elevated to pop culture status.
And we believe our brand power and successful strategy, coupled with an accomplished and proven team along with our passionate and dedicated organization provide a strong model for delivering sustained profitable growth. The combination of an efficient core business driven by continued enhancements diversification.
And innovation, including newer initiatives such as the bear case.
Which is an age gated section of our website designed to expand our addressable market by offering what could be considered a somewhat surprising stock selection of adult targeted very bring collectibles and licensed products for older consumers such as the recent launch of our matrix. There are our fan favorite Deadpool there as well.
It's romantic gift and the instantly popular van Gogh Museum collection.
Bear case May have recently hit your radar screen. This valentines with the broad interest in our after dark marketing campaign, which alone generated over 1 billion global media impressions.
Heart box, our new gift box collection that offers that tasteful curated assortment of theme products, including our custom build a bear for a friend.
Suites from sugar, Sina and drink where from swig to provide an upscale convenient online solution for a wide range of adult to adult gift, giving occasions with the goal of participating in the expansive gifting market.
Build a bear three D workshop, a fun e-commerce experience and creative shopping option designs. So guests can interactively engage in a re imagined virtual build a bear workshop, they see their new furry friends come to life as they select sounds and clothing with a unique digital make your own animated process that ultimately.
Directs the final product to our site checkout cart.
Our new automatic Teddy machines are a T M. Our innovative interactive Teddy bear vending machines designed as a tool to efficiently expand the brand's presence into a variety of new locations.
They have successfully debuted in airports in conjunction with our partners at Hudson as well as in children's Hospital.
<unk> has been added to our online checkout process to provide guests with a convenient extended payment plan for purchases with the goal of improving conversion and increasing average order value.
In fact, the average order value of our fourth quarter corner transactions was over 50% higher than non core in our orders.
Buy online pick up in store buy online ship from store and same day delivery through ship lowers common purchasing hurdles by providing important last mile options for our guests.
Improving our efficiency by using our retail workforce and store fleet as fulfillment centers.
Because this approach also shorten delivery time it extends the shopping window for holiday and occasion gifting.
And our ongoing evolution of digital marketing capabilities and consumer service tools is expected to continue to drive both e-commerce and physical store traffic and sales.
As a reminder, these recently launched programs are all aligned with our strategic pillars of one further driving our digital transformation to continuing to evolve our retail experience and leverage our expanded omni channel capabilities and three optimizing our solid financial position to invest in growth.
While generating sustained profitability.
With that I would also like to share. Some additional efforts that are expected to launch in 2022 systems to support these three strategies, including <unk>.
First as it relates to leveraging our ongoing digital transformation, we have plans in place to improve repeat purchase and enhanced engagement with the 12 million opted in first party data contacts.
Including over 10 million active build a bear bonus club loyalty members.
By implementing a new advanced loyalty module with sales force to better leverage the improvements that have already been made in the digital marketing area and by utilizing this module to access a single view of our individual bonus club members to engage with them using relevant guest specific in <unk>.
Personalized experiences and sales matches messaging is this approach has been shown to deliver higher click through rate and conversion metrics, which contributes to incremental purchases.
In addition to optimizing our current first party data with add on purchases. We also have programs aimed to extend our addressable market by reaching beyond the core Kid base to acquire new teen tween and adult consumers with unique affinity offerings and expanded.
Purchasing occasions.
We have over 75 licensed relationships in place ranging from Star Wars, the Harry Potter to pokemon to the NFL and have added properties such as the recently launched and already popular Elvis Furry friend and the new rebel girls collection that launched on Tuesday in honor of International Women's.
De.
We have shown a consistent ability to leverage the affinity that consumers have for other brands to fuel new guest acquisition through the use of our dynamic digital marketing tools, resulting in added himself and then in <unk>.
Significant increase in Google search data for our brand.
Yet another proof point of its relevant.
Also we plan to continue to utilize digital media content and entertainment as marketing and brand building tools to engage consumers and create value.
We have a variety of build a bear created intellectual properties, including Honey girl. The popular product line that inspired the music driven live action film starring Grammy Award winner Ashanti that was released last fall in conjunction with Sony.
We are delighted that the movie was recently added to the quality selection of Netflix entertainment viewing options expanding the potential audience for honey girls by millions of target consumers.
Next we expect to continue to leverage our expanded omni channel capabilities, while further evolving retail experiences and purchase occasions.
With 97% of North American stores profitable with an average contribution margin of over 25% in fiscal 2021, we believe there's an opportunity to strategically add new locations.
Specifically in addition to a number of non traditional locations that were opened in 2021, which were shared in our third quarter call. We expect to add between 15 and 20, new store locations in North America through a combination of corporate and third party retail with an emphasis on tourist side.
Over the next two to three years.
As a part of this initiative, we recently opened a new retail format called build a bear adventure in our home market in St. Louis.
Cheering party rooms, and an arcade in addition to the classic Bear building process. This concept is designed to build on and extend the strong connection consumers have with the brand in association with birthdays and parties.
By offering a next level experience for guests.
While also providing expanded omnichannel fulfillment support.
Speaking of parties after a nearly two year pandemic driven hiatus, we are expecting to relaunch our beloved build a party business and stores in the coming weeks.
Historically generating up to 5% of sales our party business has long been a staple of memory, making for guests and has served as a rite of passage for millions of children.
We could not be more pleased to bring parties back to the workshop in conjunction with our own 25th anniversary celebration.
Celebration.
Separately, while we have shared that the pandemic disrupted some of our international franchise operations. We continue to believe in the broader opportunity of the brand globally.
With that in mind, we recently partnered with global E, which offers a platform to enable and accelerate direct to consumer cross border E Commerce.
As we rollout the capabilities in the upcoming months international shoppers will be able to more efficiently access our digital product offerings.
<unk> with Canada and Mexico.
As noted we plan to capitalize on build a bear as 25th anniversary to create interest leverage nostalgia and drive incremental visits and sales.
We have activities planned throughout the year, including for the first time in our history, a special collection of fan favorite very brands inspired from the past being launched with new releases planned intermittently throughout the year.
Our Valentines day Classic Hearts for you pump sold out quickly and we have seen positive consumer reaction on social media in anticipation of upcoming releases.
We have also developed a number of exclusive limited edition collaboration with a selection of our powerful portfolio of licensed partners, which is expected to create buzz and drive demand.
And our new celebratory marketing campaign was fittingly introduced on January the 25th encouraging our millions of fans and guests to engage with us.
While recalling their own personal memories related to the millions of beury friends that had been made leading up to this milestone anniversary of build a bear workshop.
With respect to the final strategic pillar of continuing to optimize our solid financial position to invest in growth while generating sustained profitability.
We plan to maintain disciplined expense management, particularly in light of the inflationary pressures wage increases and supply chain challenges.
We also remain focused on ongoing post pandemic lease negotiations and continuing to evolve retail real estate portfolio to new locations format and business model and we expect to continue to strategically manage capital to support key initiatives.
<unk> innovative development designed to deliver long term profitable growth and return value to our shareholders as.
As we kicked off our fiscal 2022 following the close of a remarkable year of challenge and change that ultimately delivered record profitability. It feels appropriate to take a quick look back on the winding road. This team and company has navigated to arrive at.
At this juncture.
One way to highlight the significant progress is by comparing our fiscal 2021 results with those of 2012, the last fiscal year before the broader strategic plan was put in place.
Total 2021 revenues were over a $411 million compared to $384 million in fiscal 2012.
2021, digital demand reached over $70 million with a penetration of nearly 20% of net retail compared to E. Commerce sales that were approximately $14 million in 2012 or 4% of net retail sales.
2021 merchandise margin increased over 950 basis points compared to 2012, even with pandemic driven challenges and supply chain disruptions.
97% of North American stores were profitable in fiscal 2021, with an average contribution margin of over 25% compared to 20% of all locations being unprofitable with less than an average 10% margin in 2012, and reflecting our efforts to diversify.
Our retail footprint at year end in 2021 less than 65% of our stores were in traditional mall versus over 85% in 2012.
Finally in 2021, we delivered over $50 million in pretax income again, resulting in the most profitable year in our history.
Paired to our pre tax loss of $47 million in 2012.
In closing as noted thus.
Thus far we have continued to experience positive momentum in the first quarter of 2022.
I would also like to note that our company was recently named to the Forbes list of America's Best employers for the third consecutive time.
With that I would like to thank everyone at build a bear for delivering these record breaking results in fiscal 2021.
Our passionate and dedicated team is the beating heart of our company and brand.
We are also grateful to our valued guests suppliers and other partners who have played a part in delivering this business expansion.
We believe we have strong plans in place to continue the positive start of our 25th anniversary year, assuming no further negative COVID-19 impact or effect from other external disruptions.
And we intend to remain focused on leveraging our broadened capabilities and innovative programs with the goal of driving further profitable growth and shareholder return.
Now I would like to turn the call over to Boeing to discuss our financial results in more detail.
Thanks, Sharon and good morning, everyone.
Our performance continues to reflect the success of our strategy, which is allow us to put the building blocks in place to develop a powerful platform to support our initiatives to deliver consistent profitable growth.
We believe our elevated omni channel business model, which includes a highly profitable e-commerce and experiential retail store base complemented by diversified our revenue streams and disciplined expense and balance sheet management puts us in a solid position for continued.
Future success, which includes a strong start in the first quarter of this year.
We are pleased to finish fiscal 2021 near the high end of revenue and profit guidance provided in early January even as the surge in Covid variance cases led to temporary closures of certain locations.
<unk> the number of operating days in the month by about 4% negatively impacting revenue by approximately $1 million.
Even with that we delivered full year pretax profit of $57 million, which has been noted as the highest in our company's history.
Due to strength of these results we reversed the tax valuation allowance in North America, which reduced our tax expense for the year okay.
Accordingly for comparability purposes, I will focus my comments on pretax income and EBITDA.
Okay.
Let me now share more information on our fourth quarter results, which include comparisons to both the 2020 in 2019 fourth quarters due to the temporary COVID-19 related store closures last year.
Total revenues were $130 million is 38, 8% increase compared to the fourth quarter of fiscal 2020, and a 24, 3% increase compared to 2019.
Our sales improved across geographies driven by higher traffic sales.
Traffic levels as well as an increase in average unit retails compared to the 2024th quarter.
Gross profit margin of 53, 5% increase more than 300 basis points from 52% and 54% in the fourth quarter of fiscal 2020 in fiscal 2019, respectively.
The growth in total revenues drove leverage in fixed occupancy expense.
And we also benefited from a renegotiated lease terms, which started to take effect in 2020.
Merchandise margin reflected lower promotional activity and the strategic increase of prices on highly sought after products, which was more than offset by increased airfreight costs and supply chain and inflationary pressures that we continue to anticipate being headwinds for the foreseeable future.
SG&A dollars increased compared to both the 2020 in 2019 fourth quarters.
However, SG&A as a percent of total revenues improved to 38% versus 38, 7% last year and 43, 41% in 2019.
The increase in SG&A dollars compared to the prior year was driven by higher store labor expenses increase in variable cost driven by sales growth initiatives inclusive of higher marketing spend and funding of performance based incentive programs.
Notably, we delivered $21 million in pre tax income an improvement of $9 4 million compared to the prior year's quarter and an increase of $12 5 million versus the fourth quarter of fiscal 19.
For fiscal 2021 total revenues were 411 5 million, an increase of 61% compared to fiscal 2020, and a 22% increase versus fiscal 2019.
Pretax income was $50 7 million an improvement of $79 million from fiscal 2020, and an increase of 49 four in $1 million from fiscal 2019.
EBITDA was $63 million, an increase of $70 million compared to fiscal 2020, and 47 7 million compared to fiscal 2019.
Turning to the balance sheet.
We ended the year with cash and cash equivalents of $32 $8 million with no borrowings on our credit facility.
This compares to $34 8 million at the end of fiscal 2020.
During the fourth quarter, we returned $24 $4 million in value to shareholders through share repurchases and payment of a special dividend.
The ending cash balance also reflected increased investment in working capital.
Total year total inventory at year end was $73 6 million.
An increase of $26 $7 million from fiscal 2020 year end and an increase of $22 million from fiscal 2019 Europe .
As we have previously shared.
We proactively accelerated the timing of many of our order placements and we increased quantities for core products and evergreen merchandise collections to support our business momentum in this part of our efforts to mitigate ongoing supply chain challenges.
We remain comfortable with the level and composition of our inventory.
Capital expenditures were $8 $1 million for the year, and depreciation and amortization totaled $12 3 million.
As it relates to our outlook for 2022.
We are currently providing first quarter guidance for revenue and profit.
We are not introducing a full year expectation for these metrics at this time given the need to assess the initial impact of stimulus on consumer spending which occurred later in the prior year as well as to have better understanding of the current geopolitical situations the evolving pandemic and the potential impact of additional <unk>.
Inflation pressures.
Based on the positive momentum that we are seeing in our business across geographies in our first quarter. We currently expect.
Total revenue to exceed prior year revenue.
And both pretax income and EBITDA to exceed the record profitability be recorded in Q1 of 2021.
As a reminder, during the majority of the first quarter of fiscal 2021, our stores in the United Kingdom, and Ireland, where all temporarily closed due to government mandates.
Therefore, we had no store revenue or payroll expenses during that time.
In our UK revenue was driven by e-commerce .
In addition, we benefited about $900000 from UK government business restart of grants that are not expected to repeat in 2022.
Regarding the longer outlook on full year basis, we currently expect capital expenditures to be in the range of $10 million to $15 million.
Depreciation and amortization to be in the range of $12 million to $14 million in tax rates to be around 25%.
In closing we are pleased with our record performance and the momentum in our business. So far in the first quarter and I want to thank and congratulate.
The teams across the globe that have driven these results our store.
Warehouse and corporate office Associates continue to make a difference every day along with the support received from our vendors logistics suppliers and other partners.
We remain focused on accelerating the execution of key strategic initiatives and with the goal of delivering long term sustained profitable growth and increasing shareholder value.
This concludes our prepared remarks, and we will now turn the call back over to the operator for questions operator.
Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate that your line is in the queue.
Press Star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question comes from the line of Eric better with SCC Research you May proceed.
With your question.
Good morning congratulations.
Congratulations on an impressive year.
Thanks, everyone and thanks, Eric.
Let's talk and I know, it's a big big push to get to the team between an adult customers.
What are the economics of that customer do they buy more products do they pay more full price or how should we be thinking is that kind of goes in terms of their value as a customer.
Yeah. That's a good question, Eric, but it's kind of a multifaceted answer unfortunately.
First of all just to level set we've we've evolved that.
Consumer base to now represent about 40% of our total consumer base. So we were comparing making comparison some comparisons to 2012, that's a significant improvement or significant expansion.
And by doing that we believe that there is a a longer term more consistent a potential in the broader addressable market that that represents versus the kids market, which is still critically important to us obviously still the majority of our business, but I think that more.
People understand in the kids business there is a bit of a churn that you have to you know.
Theres, a leaky bucket of kids that Adrienne and age out.
Then of your market. So there's ongoing marketing initiatives that we have to keep those kids renewed in there.
On the specifically to your question they kind of.
They kind of group into I'll talk about the two biggest areas one is our collector.
Those are incredibly valuable consumer sets, a very efficient consumers for us. So we will just use pokemon as an example, those average purchases are above our average D. P. T. Our average DPT in the mid fifteens, and where that's usually a minimum purchase than 60 65 75.
$75.
And we know who those consumers are and we're able to efficiently and directly communicate with them. We're also able to tag pokemon collectors.
And with our advanced digital marketing capabilities. So they tend to buy efficiently they buy online they usually buy mobile.
And they over index in our E Commerce business.
The other side is the giftable market.
And that's a new opportunity for us a newer opportunity for us, but we've been building that and we started building it three or four years ago really.
And a more overt way with some of our adult to adult Valentine's gifting that really did explode this year with the after dark.
Initiative those are what we're doing with that is we're tagging other giftable types of searches to find these consumers to position build a bear as an alternative to other adult to adult type gifting heart box fits in that category as well.
So as we I believe introduce and educate people has built with build a bear in this multi generational aspect as a gifting alternatives.
We'll have more opportunity.
To build out that business they want it and the goal is that they will repeat for additional occasions. So when we talk about expanding consumers are faint expanding occasions and expanding.
Expanding products, that's a perfect example of that.
So in both cases, both that market as an example, the sheer size of it of the addressable market of the teens Tweens and adults is bigger than our core market from a mining perspective, but the categories that we're pushing like gifting, our collectibles is bigger than plush our toy.
So we feel like that this is an important initiative for us for future growth.
Okay.
The other question is the need stores, you know you talked about expanding into more tourist driven locations.
And what are you seeing from that.
In terms of I don't know maybe metrics book pieces here. Thanks, you want to be more aggressive in terms of that rolling out that business, even more than you had before.
Right. So we did mention our expectation to rollout a new stores over the next two to three years.
As we've discussed and shared for some years now tourist locations tend to over index on all key metrics are many of our key metrics.
It it's a it's a marketplace where there is a different mindset. We found of a consumer they look at build a bear is the best possible souvenir in some cases.
We have procured products that are pushed out in front of a micro distribution perspective to make that even more special you know maybe something about a specific feature of the right. The correct sports team or any is something that city based.
That that makes it a very memorable very memorable part of the trip for our family and there's usually a little bit of a more open wallet when you're on holiday, which is usually what's happening in these tourist locations. We believe that there's a lot of dish a lot more additional.
<unk> as well with our third party retail not just our own types of one off locations in some tourist destination areas and the tourist destinations that we.
We shared at the end of our third quarter call. They are currently out there at least for the in the end of 2021 by the end of 2020, which we're reporting on they were outperforming their pro forma. So we're very pleased with the selections that we've made and Phil feel very good about our strategy in this regard, particularly since we don't.
Believe were over stored and we have a very efficient model and how the rollout I think one of the more exciting things that we shared though on the store openings with the build a bear adventure, which is an entirely new way to experience build a bear and amplify one of the consumers.
Favorite things about build a bear is this celebratory party aspect of who we are.
Alright.
One quick clarification, you said.
It was 15 to 20 bps your openings or is that in conjunction with other people.
<unk>.
What we specified in the remarks is it's a combination of both.
Okay Alright.
Alright, okay.
Good luck.
We are also listening.
Thanks, Eric.
Our next question comes from the line of David Cannon with Cannon wealth management. You May proceed with your question.
Good morning.
<unk> team great job congratulations on an excellent year.
Thank you thanks, David and good morning.
So I've got a number of questions. So please bear with me the patient.
<unk> spent a lot of time sketching out incremental opportunities and there are a few of them.
So I've got a number of questions. If we could drill down on that so if you could start with let's call. It the expanded total addressable market opportunities are getting into collectibles teens tweens adults could you give us a little bit more color there and.
Talk about the size of that opportunity and what you think you can accomplish over the next three years versus or in comparison to your core historical business.
Thanks, David So I guess, one thing that I'd want to start by clarifying.
We're trying to position that were quote unquote getting into the collectibles business. We've been in the collectibles business for some time now which is how we've accomplished the 40% of our total sales being attributable to teens, tweens and adults, which overindexes.
Over indexes with that.
Partnered with you know a lot of these licenses over time from.
We started to see this emerge all the way back to lets say how to train your dragon where that over indexed with our adult consumer and now with Baby Yoda was a good example, Harry Potter is a great example of our ability to generate mean.
Meaningful sales at good margins.
With this different type of consumer base and as I mentioned some of them are highly repeatable kinds of consumers.
And so and then now with after dark which was another I don't know if you were able to keep caught some of that in the one maybe you were one of the 1 billion plus impressions that we receive from after dark.
Now we have not shared what.
What we believe that potential is but we know that given our multi generational aspect that there is a desire to see build a bear, particularly mashed up with other park, what's called the mash up with other popular brands and it is tends to be a higher higher.
A higher price point higher Dept, with a good accretive margin.
And when they are engaged in a single.
Sort of like Pokemon like I use as an example with Eric.
That said the second and third and fourth purchase is very efficient for us to market to them, because we know their history and so they do drive once we get them and that kind of consumer profile. They do drive a strong lifetime value.
Okay. So I mean could you talk about the opportunity and quantify it do you think that over time over the next three years that that is a business that can equal.
Equal or exceed your core business.
Yeah.
Yeah.
David we've not shared information like that over the future information over the next three years by a set by segment, but clearly given that we're emphasizing it and we are building out online.
Online experiences like bear cave or specific marketing efforts like after dark expanding some of our core licenses into things like matrix our friends.
We believe there is a significant opportunity enough opportunity for us to devote our time energy and capital.
With the proper return to make that decision.
Okay, and then you spoke about the store fleet right now and please correct me if I'm wrong, it sounded like you're averaging 25% store level EBITDA. If that's incorrect. Please clarify.
Clarify, but if that is the case could you talk about the opportunities white space you know areas.
Areas, where you can fill in and potentially you know potentially match or exceed.
Those results within your fleet.
So David Yes.
Head in her prepared remarks, we talked about the progress. The company has made since 2012 and you know the four wall contribution was under 10%.
This is the year of it 97% of our stores being profitable on affordable basis with over 25% four wall contribution.
Actually 99% stores are profitable and on EBITA affordable EBITA. So.
Really strong performance in debt EBITA number it's a few percentage points higher. So we are definitely pleased with what we have been able to do and achieve.
Definitely as we think about white space in some of those areas. We believe as we've shared previously.
<unk> stores in tourist locations and in places where people and families go for fun and entertainment continues to be.
Very accretive for us and you know we've shared on previous calls some of the locations and tourist places that we opened recently we continue to work.
With different partners both for stores that people don't operate owned and operated and third party retail stores. So we definitely believe that that opportunity and we called out 20% to 25 stores that we are planning to open over the next couple of years.
Okay, So 20% to 25, new doors over the next couple of years in North America correct, Yes, Okay, Okay and then.
I'm, sorry, I have so many questions here, but they're very important to me so just bear with me.
I'm declaring COVID-19 over now and people are going to start doing birthday parties. It seems like we are in agreement.
Could you help us understand.
Maybe as a percent or just some rough idea how much was that of your business back in 2019.
And so we can size up what that opportunity is.
Going forward.
And by the way.
If you could just clarify im assuming there were very few if any parties in Q1, you know with AMA crowd region and so forth could you also just comment on that.
Okay.
As we mentioned in the remarks.
Historically birthday parties represent about 5%.
Of our business.
And no we did not have any birthday parties in the first quarter, because we had not restarted them yet we are expecting to restart them in the next quarter, we have announced the restart so people can start to sign up for them, but we have not yet executed a party.
We're quite excited about it as I shared them.
Birthday parties has historically been an important part of who we are it's millions of kids over the course of our last almost 25 years has used that as a rite of passage is also a really efficient trial mechanism. It's almost paid for trial all the other kids that are in.
I did fall in love with build a bear to our average parties about $5 to six kids.
So we you know where the our bear builders have all been retrained since many of them some of the obviously the newer ones since we've been closed down 100%.
For two years due to the pandemic. So there could be some pent up demand here, we don't really have a good sense, having just since the email them exactly how that's going to shake out obviously.
But you know we are expecting a positive response to that.
Okay, and then you spoke a little a little bit about your new concept store.
The build a bear adventure.
Could you delve into the store economics, there what do you think the prototype in Chesterfield.
What do you think it costs to build that box and then what the ROI potentially will be and what's the early read I tell it looks like very early but is there any initial response in terms of bookings parties and events and so forth.
Okay.
So David.
It is a little bit too early to talk about that store we just.
I think the first weekend.
Last weekend was the first weekend that we.
Had some events there.
Definitely this is one of those opportunities that we continue to look and diversified real estate portfolio.
When we think about cost and economics of these stores. It is too early because usually when you do this first prototype and we are looking to innovate and be creative.
Typically you don't get the scale that.
We can get.
The points like assuming this is going to be successful then you start rolling it out I think we have a good track record and history that in the past when we withdraw these things out and do things we were creative and we will drive cost down of these things in return strong.
And deliver a strong ROI that's manifested in that number that I shared previously with you that 25, 6% four wall contribution. So definitely you know we have expectations for these stores they are in.
<unk>.
Contrast to field area that you called out so definitely we believe with favorable rent structure and.
Being a different places that we are going to be able to drive growth drive sales and you know this is going to be like you know part of that.
<unk> to diversify off mall.
Okay.
And then.
My next question is.
You spoke about incremental opportunities.
Band it.
Pam and with.
Collectibles teens tweens adults.
E Com is a growth opportunity 20 to 25, new stores, what you didn't talk about as pets I believe that pet gifts toys are an enormous opportunity equal maybe even equal to.
The car business over time in the past you referenced there was something in the pipeline is has that slipped or is that still something that you are currently working on and that we could expect in the future.
Yes, David we did share that we had signed an outbound licensing deal for build a bear with pets. It has not slipped.
And we are still continuing to work with that organization and we will make a likely a consumer facing announcement when it is appropriate.
Okay, and then I'm going to.
Okay, I'm going to wrap it up but with a quick question.
And then a comment.
So my question is.
With our stock trading.
Currently at three five times EBITDA maybe.
It may be 375, depending on what you used from this morning, I'm very surprised the stock is down.
<unk>.
Yeah.
Have not been real aggressive in terms of going out and telling the story, we have very little I think Erik Peter does a great job, but we have very little sponsorship from the sell side you haven't really been at conferences.
Things are opening up now this year do you expect to be out there and to tell the story. That's number one and then just my commentary for you guys and the board is.
Special dividend I mean, I appreciate that money going into my bank account, but there is not the market doesn't put a multiple on it. It's a one shot deal you don't get credit for it.
Our buyback over time shrink the share count and increases EBITDA per share as you guys know very well.
As we continue to generate.
Very strong free cash flow.
I would like my message to the board many of which don't have a lot of stock is for our shareholders. It's very important to retire the share count and drive EBITDA per share not only will increase EBITDA per share, but the market will ultimately say you guys are great capital Allocators, and then you get a premium.
Some valuation.
No.
That's my commentary our message for the board on a go forward basis. After you guys exhaust the remaining balance of this 20 $25 million buyback I would like to see you guys reload and continue if we're at these kind of levels to shrink chairs. So and then I'll, let you talk about the conferences. Thank you.
And best of luck for the remainder of the year.
Thank you David.
Yes.
Okay.
Okay.
Pardon me.
As a reminder, if you would like to ask a question. Please press star one on the telephone keypad.
A confirmation tone will indicate that your line is in the question queue.
Our next question comes from the line of Robert Sussman with Bentley Capital Management. You May proceed with your question.
Can I, just say that the moderator started out the call by asking people to limit their questions to one.
A number of the questioners, especially the last one as numerous questions that went on for quite a period of time and there are several people on this call and I think.
<unk>, just going to say that you should enforce it.
I'd like to say is that obviously your stock is getting hammered and I assume that is because and the headline was that the company is seeing inflationary pressures, but you saw inflationary pressures I assume in the fourth quarter, you're seeing it in the first quarter, yet you're still forecasting record earnings and you.
Purchased quite a bit of inventory to stock up.
Can you just talk about what the impact is.
<unk> is having and whether it's completely changed your outlook for 2022 because.
The market seems.
Seems to think this is a very very big deal, but it doesn't seem that way to me.
Yeah, Robert Thank you so much.
That's not our headline that's somebody else's headline that's the journalists headline our headline was build a bear workshop reports record pre tax income.
So you know.
We do feel good and that's why we wanted to announce the first quarter.
Some guidance on first quarter to kind of moderate.
What could be misinterpreted.
But at the same time and I'll hand, this over to point there are some realities and the situation is not that we don't mention.
Mentioned multiple times in the remarks that we feel confident that we have the building blocks in place, but I think that it is also clear that there is some uncertainty and we want to be able to provide accurate guidance on a full year basis and that we chose to be cautious.
In this situation, but it does not mean that we don't feel that our building blocks are in place. It certainly does not mean as we shared multiple times in the remarks that we.
We had we're not seeing positive momentum right now at first quarter year to date, which we are.
As Robert Thanks for a question and you called it out you know.
Throughout last year, we were able to mitigate and manage some of those inflationary pressures that are also reflected in Q4, and we continue to manage things that are within our control.
Yes, we were more aggressive and proactively we were buying inventory throughout last year and also this year. So really mitigate some of those inflationary pressures those are real and they continue to change and evolve and more recent geopolitical uncertainty in situations thats been created.
In Europe is definitely you know, we don't know what the full impact of that is going to be.
It is difficult.
Definitely more difficult to manage something when it's a moving target as inflation is at this point in time, but we continue to stay focused on things that are within our control we have levers and things in place that we can continue to fall we continue work.
To work with our vendors and suppliers to create efficiencies in supply chain to mitigate some of these potential challenges. We continue to be very disciplined from the promotional standpoint from expense and balance sheet management. So those are things that we have at our disposal. In addition to that we've been selectively.
<unk> prices last year, and we are going to continue to look and reassess and at the end of day.
We have been able to deliver strong results last year as you pointed out and we called out we expect to deliver again a record Q1 profitability.
Profitability and improvement in revenue versus last year. So we definitely feel good about things that we have seen so far but again there is just future uncertainty, especially related to some of the oil changes and some of the prices that we are seeing on the geopolitical front right and just.
Data to support that as an example, our D. P. Ts are at or near historic highs in our promotional percentages at are at or near historic low.
Okay.
I think youre doing a terrific job managing through it and I think that as you say the headlines are extremely misleading.
So thank you very much.
Thank you. Thank you.
At this time, we have reached the end of the question and answer session and I will now turn the call back over to Sharon for any closing remarks.
Thanks, and in closing I'd like to note that we are participating in the D. A Davidson virtual conference later today.
And we expect to attend the Roth Investor Conference in person early next week.
Currently we intend to provide details in the coming weeks regarding a planned build a bear workshop virtual investor meeting to be hosted by Bristol capital and Investor Relations and capital markets Advisory firm.
Thank you again for joining us today on the call and we look forward to updating you on our first quarter results.
Yes.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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