Q1 2024 Build-A-Bear Workshop Inc Earnings Call

Greetings and welcome to the build a bear workshop first quarter 2024 earnings call.

Operator: Greetings and welcome to the Build-A-Bear Workshop First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Gary Schnierow, Build-A-Bear Investment Relations. Thank you. You may begin.

Speaker Change: This time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: I'd now like to turn the conference over to your host Mr. Gary narrow build a bear investor relations. Thank you you may begin.

Gary D. Schnierow: Thank you. Good morning everyone, and welcome to Build-A-Bear's first quarter 2024 earnings conference call. With us today are Build-A-Bear CEO Sharon Price John and CFO Voin Todorovic. During this call, we'll refer to forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially. Please refer to our Forms 10-K and 10-Q, including the Risk Factors section. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and non-GAAP financial measures.

Thank you good morning, everyone and welcome to build a bear's first quarter 2024 earnings conference call with Us today.

Speaker Change: Their CEO, Sharon price, John and CFO blind to dormant during.

Speaker Change: During this call we'll refer to forward looking statements that are subject to risks and uncertainties actual results could differ materially. Please refer to our forms 10-K, and 10-Q, including the risk factors section. We undertake no obligation to update any forward looking statement.

Speaker Change: During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website.

Gary D. Schnierow: A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website. And now, I'll turn the call over to Sharon. Thank you, Gary.

Speaker Change: And now I'll turn the call over to sure. Thank you Gary Good morning, and thanks for joining us for build a bear as first quarter fiscal 'twenty 'twenty four earnings call.

Sharon Price John: Good morning, and thanks for joining us for Build-A-Bear's first quarter fiscal 2024 earnings call. For the past few years, you've heard us reaffirm our strategy, which is focused on the evolution of our business model to profitably leverage the power of the Build-A-Bear brand. Although first quarter results were slightly more challenging than anticipated, we are reiterating guidance given our expectation of the successful execution of our strategic plans for the balance of the year.

Speaker Change: For the past few years, you've heard us reaffirm our strategy, which is focused on the evolution of our business model to profitably leverage the power of the build a bear brand.

Speaker Change: Although first quarter results were slightly more challenging than anticipated we are reiterating guidance given our expectation of the successful execution of our strategic plans for the balance of the year.

Sharon Price John: We believe that the diversified business model we have created and the systematic digital integration we've been working towards over the past few years has shown numerous proof points of our growth strategy. We have broadened Build-A-Bear's brand reach through consumer, geographic, and category expansion with a mantra we like to refer to as more people, more places, and more products. As an example of product expansion, we leverage the brand's popularity and diverse consumer appeal with continuous launches of new make-your-own furry friends, including key licenses such as Pokemon or TikTok trend animals such as our Capybara, and new plush form factors like the recent successful introduction of our Mini Beans collectibles.

Speaker Change: We believe that the diversified business model, we have created and the systematic digital integration we've been working towards over the past few years has shown numerous proof points of our growth strategy.

Speaker Change: We have broadened to build a bear's brand reach to consumer geographic and category expansion with a mantra, we like to refer to as more people more places and more products.

Speaker Change: As an example with product expansion, we leverage the brand's popularity and diverse consumer appeal with continuous launches a new make your own very friends, including key licenses such as pokemon Arctic top trend animals, such as our coffee bar and new flush form factors like the recent successful.

Speaker Change: Churn of our many beans collectible.

The systematic execution of these strategic business initiatives has resulted in our ability to maintain a higher level of profitability, while continuing to invest in the future of the company and returning capital to shareholders.

Sharon Price John: The systematic execution of these strategic business initiatives has resulted in our ability to maintain a higher level of profitability while continuing to invest in the future of the company and return capital to shareholders. In fact, over the past three-plus years, Build-A-Bear has enjoyed record-breaking sales and an unprecedented period of profitability compared to any other time in its quarter-century history, as we have driven the business model evolution to deliver record profits and shareholder payouts.

Speaker Change: In fact over the past three plus years build a bear has enjoyed record breaking sales and an unprecedented period of profitability compared to any other time in its quarter century history.

Speaker Change: As we have driven the business model evolution to deliver record profit and shareholder payout.

Sharon Price John: Even in this challenging environment, first quarter results remain at a much higher level of profitability when compared to any pre-COVID first quarter since the company's IPO in 2004. With this higher level of profitability, we remain committed to returning capital, distributing over $12 million to shareholders in the first quarter through a combination of share repurchases and our own, recently announced quarterly dividends. Now to recap the first quarter.

Speaker Change: Even in this challenging environment first quarter results remain at a much higher level of profitability when compared to any pre COVID-19 first quarter since the company's IPO in 2004.

Speaker Change: With this higher level of profitability, we remain committed to returning capital distributing over $12 million to shareholders in the first quarter through a combination of share repurchases and our own.

Speaker Change: Our recently announced quarterly dividend.

Speaker Change: Hum.

Speaker Change: Now to recap first quarter, we delivered almost $115 million in revenue, which is a decrease of 4.4% versus the same period last year and pretax income of more than $15 million for a 13.1 pretax margin.

Sharon Price John: We delivered almost $115 million in revenue, which is a decrease of 4.4% versus the same period last year, and pre-tax income of more than $15 million for a 13.1 pre-tax margin. Although, as we had shared on the fourth quarter call, we recognized that the potential of some economic uncertainty and business volatility from our ongoing marketing and web transition could affect the first quarter, the impacts were somewhat greater than expected, with web demand being a significant contributor to our overall revenue decline.

Speaker Change: Although as we had shared on the fourth quarter call. We recognized that the potential of some economic uncertainty in business volatility from our ongoing marketing and web transition could affect the first quarter. The impacts were somewhat greater than expected with web demand being a significant contributor to our overall revenue decline.

Speaker Change: Now I would like to turn the page to a brief update on our three pronged strategy to deliver long term profitable growth.

Sharon Price John: Now I would like to turn the page to a brief update on our three-pronged strategy to deliver long-term profitable growth. As you may recall, the strategy is grounded in what we believe is our most valuable asset, the power of the Build-A-Bear brand, and is based on the following initiatives. First, is the global expansion of our unique experience locations, which includes the continued strategic evolution of a variety of store types and footprints, as well as our three retail business models: Corporately Operated, Partner Operated, and Franchised.

Speaker Change: As you May recall the strategy is grounded in what we believe is our most valuable asset the power of the build a bear brand and is based on the following initiatives.

First is the global expansion of our unique experience locations, which includes the continued strategic evolution of a variety of store types and footprint.

Speaker Change: As well as our three retail business model Court.

Speaker Change: Corporately operated partner operated and franchised.

As a part of our partner operated business model, we opened five new locations in the first quarter. Two stores were an expansion of our relationship with our Italian partner Yahtzee Piazzi with shop in shops in Rome and bertelli.

Sharon Price John: As a part of our partner-operated business model, we opened five new locations in the first quarter. Two stores were an expansion of a relationship with our Italian partner, Giassi Friassi, with Shop and Shop in Rome and Bercelli. In the U.S., we opened another two locations with the Girl Scouts. And we expanded our South American footprint beyond our franchise relationship in Chile with our first partner-operated shop-in-shop opened with Boeing Global in Bogota, Colombia.

Speaker Change: In the U S. We opened another two locations with the girl Scouts.

Speaker Change: And we expanded our south American footprint beyond our franchise relationship in Chile, with our first partner operated shop in shop opened and with Boeing Global in Bogota, Colombia.

Speaker Change: We are delighted to share that early in the second quarter. We opened our first partner operated location in France at the iconic Paris Department store Galeries Lafayette Anshan Felicia.

Sharon Price John: We are delighted to share that early in the second quarter, we opened our first partner-operated location in France at the iconic Paris department store, Galeries Lafayette, on the Champs-Élysées, in conjunction with longtime partner FAO Schwarz, with whom we operate the recently expanded and very successful Rockefeller Plaza Shop and Shop in New York City. This past Saturday, we opened another location with Giosi Pirazzi in Naples. Including the locations in Rome and Bertelli, plus Milan and Bergamo, which were opened toward the end of last year, this brings the total number of partner-operated stores in Italy to five.

Speaker Change: In conjunction with longtime partner F E O Schwartz with whom we operate the recently expanded and very successful Rockefeller Plaza shop in shop in New York City.

Speaker Change: This past Saturday, we opened another location wood yard stay pure IC and Napoli.

Speaker Change: Including the locations in Rome, and Bertelli, plus Milan in Bergamo, which were opened toward the end of last year. This brings the total number of partner operated stores in Italy to five <unk>.

Sharon Price John: In conjunction with existing relationships, one new franchise location opened in China and two new franchise stores opened in South Africa, plus we opened one corporately operated store in England near the popular tourist destination of Windsor Castle. We remain on track to open at least 50 net new experience locations through these three models this year. The second initiative is the acceleration of a comprehensive digital transformation for the company, ranging from systems upgrades to website integration to content creation.

Speaker Change: Separately in conjunction with existing relationships, one new franchise location opened in China, and two new franchise stores opened in South Africa, plus we opened one corporately operated store in England near the popular tourist destination of Windsor Castle.

Speaker Change: We remain on track to open at least 15 net new experience locations through these three models this year.

Speaker Change: The second initiative is the acceleration of a comprehensive digital transformation for the company ranging from systems upgrades to website integration to content creation.

Sharon Price John: Given the undeniable reality of the rapid advancement of the digital economy and the needed long-range upgrades to our infrastructure, we began the journey to unlock the value from improved processes to new systems across the entire enterprise about ten years ago. With best-in-class partners from Microsoft to Salesforce to Deloitte Digital, we have made step-by-step investments to unlock the power of an integrated ecosystem that leverages and unites the digital side of our business with our physical retail side.

Speaker Change: Given the undeniable reality of the rapid advancement of the digital economy and the needed long range upgrades to our infrastructure. We began the journey to unlock the value from improved processes to new systems across the entire enterprise about a decade ago.

Speaker Change: With best in class partners from Microsoft to Salesforce to Deloitte digital we have made step by step investments to unlock the power of an integrated ecosystem that leverages and unite the digital side of our business with our physical retail side.

Sharon Price John: The goal is to create a true omnichannel entity by seamlessly merging our online presence with Build-A-Bear's unique in-store experience to provide more personalization for consumers and what is referred to as the fidgetal economy. With that in mind, we are currently focused on driving synergy, elevation, and integration across the entirety of our consumer-facing communications and direct transaction efforts. While it is not uncommon for a transition like this to be disruptive, including impacts on web demand, we expect these steps in our digital transformation journey to unlock the combined power of e-commerce, email, social media, loyalty, and traditional marketing through a unified vision.

Speaker Change: The goal was to create a true omnichannel entity by seamlessly merging our online presence with build a bear is unique in store experience to provide more personalization for consumers and what is referred to as the digital economy.

Speaker Change: With that in mind, we are currently focused on driving synergy.

Speaker Change: Olivaceous and integration across the entirety of our consumer facing communications and direct transaction efforts.

Speaker Change: Well it is not uncommon for a transition like this to be disrupted including impacts to web demand. We expect these steps in our digital transformation journey to unlock the combined power of ecommerce email social media loyalty and traditional marketing through a unified vision.

Speaker Change: Third is the continuation of investment and initiatives to leverage build a bear's powerful multi generational brand awareness to drive incremental profitable growth.

Sharon Price John: Third is the continuation of investment and initiatives to leverage Build-A-Bear's powerful multi-generational brand awareness to drive incremental profitable growth. The meaningful improvement in the company's cash flow has allowed us to make longer-term strategic decisions across the company, touching product, brand, partnership, content, talent, and infrastructure, while continuing to return capital to shareholders. A recent example of a new initiative was the May 16th launch, introducing the exclusive multifaceted collaboration with the movie If that included a make-your-own version of the lead imaginary friend from the recent theatrical release, Named Blue, along with a specially curated in-store heart ceremony created by the film's creator, writer, director, and star, John Krasinski.

The meaningful improvement in the Companys cash flow has allowed us to make longer term strategic decisions across the company touching product brand partnership content talent and infrastructure, while continuing to return capital to shareholders.

Speaker Change: A recent example of our new initiatives and was on the May 16th launch introducing exclusive multifaceted collaboration with the movie if that included and make your own version of the lead imaginary friend from the recent theatrical release named Blue along with a specially curated in store heart ceremony.

Speaker Change: Created by the film's creator writer director and Star John Krasinski.

Sharon Price John: This integrated effort with a multi-million dollar Hollywood endeavor represents more than just the release of A New Furry Friend; it's yet another example of the pop culture nature of the Build-A-Bear brand. Meanwhile, as I mentioned briefly on the last call, we were anticipating the launch of one of our most exciting initiatives, a comprehensive new brand campaign called The Stuff You Love. Since then, we have rolled out the new creative, which is designed to further expand the appeal of Build-A-Bear while simultaneously connecting multiple generations to a universal message designed to continue to place our beloved brand right in the middle of the collective conversation.

Speaker Change: This integrated effort with a multimillion dollar Hollywood endeavor represents more than just the release of a new furry friend.

Speaker Change: It's yet another example of the pop culture nature of the build a bear brand.

Speaker Change: Separately as I mentioned briefly on the last call, we werent anticipating the launch of one of our most exciting initiatives a comprehensive new brand campaign called the stuff you love.

Speaker Change: Since then we have rolled out the new creative which is designed to further expand the pillar build a bear while simultaneously connecting multiple generations to a universal message designed to continue to place our beloved brand right in the middle of the collective conversation.

Speaker Change: Notably we are executing all of this while continuing to return capital to shareholders totaling over $100 million through the last 10 quarters.

Sharon Price John: Notably, we are executing all of this while continuing to return capital to shareholders, totaling over $100 million in the last 10 quarters. In closing, although the first quarter was challenging, as we continue to execute on the strategic initiative to leverage the power of the Build-A-Bear brand that I just reviewed, we expect to see positive momentum as the year progresses on a number of fronts. And with that in mind, we are reiterating our forecast for 2024.

Speaker Change: In closing, although first quarter was challenging as we continue to execute on the strategic initiative initiatives to leverage the power of the build a bear brand that I just reviewed we expect to see positive momentum as the year progresses across a number of fronts.

Speaker Change: And with that in mind, we are reiterating our outlook for 'twenty 'twenty four.

Sharon Price John: I would like to thank all the Build-A-Bear associates, guests, and partners for their efforts as we continue to work toward our mission of adding a little more heart to life. Now, I'd like to turn the call over to Voin.

Speaker Change: I would like to thank all the build a bear associates guests and partners for their efforts as we continue to work toward our mission of adding a little more heart to life.

Speaker Change: And now I would like to turn the call over to Hawaii.

Hawaii: Thank you Sharon and good morning, everyone. It's good to speak with you again today to share our first quarter 'twenty 'twenty four results.

Voin Todorovic: Thank you, Sharon, and good morning, everyone. It's good to speak with you again today to share our first quarter 2024 results. Before I touch on the financials from the past quarter, I want to recap a few highlights. Even with its softness, it was one of the most profitable first quarters in the history of the company. This reflects the work from our strategic initiative over the past several years and that we are now operating at a sustainably higher level of profitability. Also, as the result of solid business performance and more consistent strong cash flow generation, we continue to be committed to returning capital to shareholders.

Sharon Price John: Before I touch on the financials from the past quarter.

Hawaii: I want to recap a few highlights.

Hawaii: Even with this softness it was one of the most profitable first quarters in the history of the company.

Hawaii: This reflects the work from our strategic initiatives over the past several years and that would be are now operating at a sustainably higher level of profitability.

Hawaii: Also as the result of solid business performance and more consistent strong cash flow generation, we continue to be committed in returning capital to shareholders.

Voin Todorovic: We paid our first quarterly dividend and, during the quarter, spent $9.2 million to repurchase over 343,000 shares. Additionally, since the end of the first quarter, we have spent $2 million and repurchased more than 66,000 additional shares. Now moving to first quarter results, starting with a more detailed review that reflects a shift in weeks compared to the prior year, and specifically when compared to the 13 weeks of first quarter 2023. First quarter 2024 does not include the week ended February 3rd, a strong week for us in the lead up to Valentine's Day, our second largest holiday.

Hawaii: We paid our first quarterly dividend and during the quarter spent $9 $2 million to repurchase over 343000 shares.

Speaker Change: Additionally, since the end of the first quarter, we have spent $2 million and repurchased more than 66000 additional shares.

Speaker Change: Now moving to first quarter results.

Speaker Change: Starting with a more detailed review that reflects a shift in the weeks compared to the prior year.

Speaker Change: Typically when compared to the 13 weeks of first quarter 'twenty to 'twenty three.

Speaker Change: First quarter 'twenty 'twenty four does not include the week ended February through a straw.

Speaker Change: Weak for us in the lead up to one times day, our second largest holiday.

Speaker Change: It was replaced by a more typical week at the end of the quarter for an estimated negative impact of about $2 million.

Voin Todorovic: It was replaced by a more typical week at the end of the quarter for an estimated negative impact of about $2 million. This shift also affected the timing of some expenses. For the quarter, total revenues were $114.7 million, down 4.4% year-over-year. Net retail sales decreased 3.8%. An 11.3% decline in web demand was a significant contributor to the decline, and web demand continues to be down further today.

Speaker Change: This shift also affected the timing of some expenses.

Speaker Change: For the quarter total revenues were $114 $7 million down four 4% year over year.

Speaker Change: Net retail sales decreased three 8%.

Speaker Change: And 11, 3% decline in web demand was a significant contributor to the decrease in web demand continues to be down Florida today.

Speaker Change: Additionally, the expected negative timing due to the calendar shift and small declines in both traffic and dollars per transaction also impacted sales.

Voin Todorovic: Additionally, the expected negative timing due to the calendar shift and small declines in both traffic and dollars per transaction also impacted sales. Note that repeat customer growth was solid, while new customer acquisition, particularly online, was more of a challenge. Commercial revenue, which primarily represents wholesale sales to partner operators and international franchise revenue, was down 13.7% versus the prior year, as expected due to the timing of product shipping. We know that on the fourth quarter call that commercial revenue had a particularly difficult first quarter comparison.

Speaker Change: Note that repeat customer growth was solid while new customer acquisition, particularly online was more of a challenge.

Speaker Change: Commercial revenue, which primarily represents wholesale sales to partner operators and international franchise revenue was down 13, 7% versus the prior year.

As expected due to the timing of product shipments.

Speaker Change: We noted on our fourth quarter call that commercial revenue had a particularly difficult first quarter comparison.

Voin Todorovic: We still expect strong growth for the segment on a full year basis. Gross margin was 54.2%, an increase of 10 basis points compared to last year due to commercial margin improvement. Although retail gross margin saw an expansion in merchandise margin, that was more than offset by the leverage of fixed occupancy costs and higher depreciation expense related to last year's rollout of the new point-of-sale system. SG&A expenses were $47.6 million, or 41.5% of total revenues, compared to 38% of total revenues in the 2023 first quarter.

Speaker Change: We still expect strong growth for the segment on a full year basis.

Speaker Change: Gross margin was 54, 2% an increase of 10 basis points compared to last year due to commercial margin improvement.

Speaker Change: Although retail gross margins store expansion in merchandise margin that was more than offset by deleverage of fixed occupancy costs and higher depreciation expense related to last year's rollout of the new point of sale system.

Speaker Change: SG&A expenses were $47 $6 million or 41, 5% of total revenues compared to 38% of total revenues in the 'twenty two 'twenty three first quarter.

Speaker Change: The 350 basis point increase in SG&A was primarily driven by higher wages.

Voin Todorovic: The 350 basis point increase in SG&A was primarily driven by higher wages. Expense Timing and General Inflationary Press, For the full year, we expect SG&A as a percent of total revenue to be at or below 2023 levels. Even with the higher SG&A expense, we delivered $15 million of pre-tax income. Earnings per share was $0.82, down 16.3%, reflecting the decline in pre-taxed income, partially offset by a lower tax rate, along with the reduction in share count.

Speaker Change: Expense timing and general inflationary pressures.

Speaker Change: For the full year, we expect SG&A as a percent of total revenue to be at or below 2020 three's level.

Speaker Change: Even with the higher SG&A expense, we delivered $15 million of pre tax income.

Speaker Change: Earnings per share was <unk> 82 cents down 16, 3%, reflecting.

Speaker Change: Reflecting the decline in pretax income, partially offset by a lower tax rate along with the reduction in share count.

Speaker Change: With respect to the balance sheet at first quarter end, our cash balance was $38 2 million.

Voin Todorovic: With respect to the balance sheet, at first quarter end, our cash balance was $38.2 million, representing a 5.4 million or 16.5% increase. This was after returning nearly $30 million to shareholders over the past... Inventory at quarter end was $64 million, declining $2.4 million or 3.7% compared to the same period last year.

Speaker Change: Representing a $5 4 million or 16, 5% increase.

Speaker Change: This was after returning nearly $30 million to shareholders over the past year.

Speaker Change: Inventory at quarter end was $64 million declining to $4 million or three 7% compared to the same period last year.

Voin Todorovic: We remain comfortable with the level and composition of our inventory, starting to the end. We are reiterating our guidance. The full details of guidance are included in the press release, but I will highlight a few key metrics compared to fiscal 2023, excluding the impact of the 53rd week. We continue to expect Total revenue is expected to grow on a mid-single-digit basis. This growth is partially driven by the addition of at least 50 net new experience locations, with the majority coming through partner-operated expansion, both internationally and domestically.

Speaker Change: We remain comfortable with the level and composition of our inventory.

Speaker Change: Okay.

Speaker Change: Turning to the outlook.

Speaker Change: Reiterating our guidance the full details of guidance are included in the press release, but I will highlight a few key metrics compared to fiscal 2023, excluding the impact of the 50 <unk> week.

Speaker Change: Continue to expect so.

Speaker Change: Total revenue to grow in the mid single digit basis.

Speaker Change: This growth is partially driven by the addition of a police 50 net new experience locations with the majority coming through partner operated expansion both internationally and domestically.

Speaker Change: Our revenue growth will be back half weighted as we add more experienced locations and expect a more favorable fourth quarter comparison on a 13 week basis.

Voin Todorovic: Revenue growth will be back half-weighted as we add more experienced locations and expect a more favorable fourth quarter comparison on a 13-week basis. Pre-tax income is expected to grow in the mid-single-digit range on a full-year basis. The Outlook also reflects ongoing wage and inflationary pressures, increased depreciation expense, and freight costs.

Speaker Change: Pre tax income to grow in the mid single digit range on a full year basis.

Speaker Change: The outlook also reflects ongoing wage and inflationary pressures increased depreciation expense and freight costs.

Speaker Change: In closing I would like to thank all of our store and warehouse associates as well as corporate team members and partners for their ongoing dedication to the execution of our strategy to evolve the company by leveraging the power of the build a bear brand.

Voin Todorovic: In closing, I would like to thank all of our store and warehouse associates, as well as corporate team members and partners for their ongoing dedication to the execution of our strategy to evolve the company by leveraging the power of the Build-A-Bear brand. 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 begin.

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

Speaker Change: Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Operator: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using paper equipment, it may be necessary to pick up your handset before pressing the star 2. We ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Eric Beder, with SCC Research. Please proceed with your question.

Speaker Change: You May press star two if you'd like to remove your question from Nikhil for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Speaker Change: We ask that you each keep to one question and one follow up thank you all.

Speaker Change: Our first question comes from the line of Eric Peter.

With us you've seen research. Please proceed with your question.

Eric Martin Beder: Good morning.

Eric Martin Beder: Good morning, good morning.

Eric Martin Beder: Great.

Speaker Change: Congrats on a lot of the positives here when you look at your own store.

Eric Martin Beder: Congratulations on a lot of the positives here. When you look at your own store expansion, what is your focus on in terms of those stores? I know that you're doing 15 total, but when you look outside of the commercial and the franchisee, what is the kind of focus for your own stores here in 2024 and beyond?

Speaker Change: <unk> expansion what are your focus on in terms of those stores I know that Youre doing 15 total, but when you look at outside of the commercial and the franchisee what is kind of a focus for your own stores here in 2024 and beyond.

Speaker Change: Okay.

Eric Martin Beder: When you say our own stores, Eric just for clarification, you were talking about Corporately operated versus partner operated.

Sharon Price John: When you say our own stores, Eric, just for clarification, are you talking about corporately operated versus partner operated? Yes.

Speaker Change: Yes.

Speaker Change: Yeah, we do have some expansion plans for corporately operated them, but as we noted on the call and as we've said in many of our previous calls we're focused more on our part and partner operated expansion because that's an asset light model.

Sharon Price John: Yeah, we do have some expansion plans for corporately operated locations, but as we noted on the call and as we've said in many of our previous calls, we're focused more on our partner-operated expansion because that's an asset-light model. As you know, an example of that is our Great Wolf Lodge location. It's a really great one where those partners purchase the fixtures, and we train their employees to be bear builders and to have a seamless, from a consumer perspective, operation that looks and feels just like a Build-A-Bear, but then we sell the product at a wholesale level to them, our Build-A-Bear product, and then they benefit from our marketing, etc.

Speaker Change: As you know you know that was an example of that is our great Wolf Lodge location, I think really bright line, where they those partners purchased the fixtures and we trained their employees to be bear builders tend to have a seamless from a consumer perspective operation that looks and feels just.

Speaker Change: The build a bear, but then we sell them at a on a wholesale level the the product to them or build a bear product and then they benefit from our marketing et cetera. So those are those are very good.

Sharon Price John: So those are very good financial numbers. I think it's a very good financial model for us in that it does take less capital for us to expand the Build-A-Bear footprint. And the important piece of that, besides the obvious expansion of the brand and potential for sales, is that the store experience is such a critical part of our ecosystem. That's how we build this power of the brand that we keep referring to. That you get to come in and choose your own stuffed animal, go through the heart ceremony, and then you're a fan for a long time, in some cases, for life, as that memory is so indelible for consumers.

Speaker Change: Good for me.

Speaker Change: Natural Ah I think it's a very good financial model for us in that it does take less capital for us to expand the building footprint and the important piece of that is besides the obvious expansion.

Speaker Change: And and the potential for sale is that that store experience is such a critical part of our ecosystem. That's how we build this power of the brand that keep we keep referring to that you know you get to come in and T shirt and stuff Dan will go through the heart ceremony, and then you're a fan them for a long time in some cases for life is that memory is someone tell them.

For consumers.

Speaker Change: Okay.

Sharon Price John: Yeah, I mean, actually, let's expand a little bit on that in terms of the non-corporate locations, the franchisees, and the international expansions. I know there's an initial ramp where they get the product in their inventory. Historically, how quickly do those stores start to really start to grow and roll out as you add in new areas like Italy, Colombia, and I'm sure there are other international territories that you're looking at right now? Yeah.

Speaker Change: Yes, I mean actually let's expand a little bit on that in terms of.

Speaker Change: Oh, the non corporate locations, the franchisees and the international expansions.

Speaker Change: I know, there's an initial ramp where they get the product in the inventory historically, how quickly do those stores start to continue to start to really start to grow and rollout as you add in new areas like Italy, Colombia and Im sure there are other international.

Speaker Change: Territories that you are looking at right now.

Sharon Price John: Yes, we are looking at other international territories. We've had a mantra inside the company for many years that a fuzzy hug is understood in every language, and kids seem to understand Build-A-Bear, as well as adults, interestingly.

Speaker Change: Yes, we are looking at other international territories, we we've had a mantra inside the company for many years that a fuzzy hug is understood in every language.

Speaker Change: And kids seem to understand that.

Speaker Change: There and as well as adults interestingly, but we do believe you know there is extended opportunity. This is interesting though your question in that these are partners. So we have to work hand in hand, that's not those aren't unilateral decisions.

Sharon Price John: But we do believe there is an extended opportunity. This is interesting, though, your question, in that these are partners, so we have to work hand-in-hand. Those aren't unilateral decisions. Some of these are shop-and-shops with other relationships. For example, GOC-Perozzi, that relationship is actually in conjunction with our relationship with Hamley, so some of those stores are shops inside of Hamley's toy stores, as an example. So when there's a pre-existing infrastructure, we can roll a lot faster.

Speaker Change: Some of these are shop in shops with other relationships. So GLC proudly that relationship is actually in conjunction with our relationship with family. So some of those stores or shop in shops inside of family toy stores. As an example, so when there's a preexisting infrastructure, we can roll a lot faster the.

Sharon Price John: The example in Colombia is actually with a relationship that's in many other countries inside of South America. We have a Chilean franchise, but beyond that, this is just a stake in the ground in an entire continent, and that was just the first store, so that's not just a Colombian relationship. So specifically, it's a sadly, and it depends answer, but there are requirements from a partnership perspective for the relationship when we look at those contracts of what the expectations are, but a lot of it is in their hands as it is their capital.

Speaker Change: The example, in Colombia is actually with a relationship.

Speaker Change: Many other countries inside of South America, we have a chill a franchise, but beyond that this is just a stake in the ground in an entire continent.

Speaker Change: And that was just the first store so that that's not just a colombia relationship. So.

Speaker Change: Specifically, it's a sadly and it depends answer them, but there are requirements and with from a partnership perspective for the relationship when we look at those contracts of what were the expectations are but but a lot of it is in.

Speaker Change: Their hands as it is their capital.

Speaker Change: Great. Thank you and good luck the rest of the year.

Eric Martin Beder: Rafe, thank you, and good luck for the rest of the year. Thank you.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question comes from the line of Greg gave us with Northland Securities. Please proceed with your question.

Gregory Thomas Gibas: Thank you. Our next question comes from the line of Greg Gibas with Northland Securities. Please proceed with your question.

Speaker Change: Great Hey, good morning, Sharon and Oh boy and thanks for taking the question.

Gregory Thomas Gibas: Great. Hey, good morning, Sharon and Voin. Thanks for taking the question. Hey, good morning, Greg. I wonder if you could speak to the web demand challenges and whether you expect them to persist and also just kind of follow up on those. Voin, I think you mentioned at a high level, but the trends that you saw with total transactions versus average transaction size, if you could cover that again.

Rob: Morning, Rob.

Speaker Change: Wonder if you could speak to the what demand challenges and whether you expect that to persist.

Speaker Change: And also just kind of follow up almost a point I think you mentioned at a high level, but the trends that you saw with total transactions versus average transaction size.

Speaker Change: Cover that again.

Sure So definitely our web traffic has been challenging during the quarter.

Voin Todorovic: Sure. Definitely, our web traffic has been challenging during the quarter, and some of those trends continue to persist so far on a quarter-to-day basis. But again, even within the quarter, some of those challenges that we saw from the web traffic perspective, especially in February, we saw very strong conversion related to our Valentine's Day product, and we saw growth in dollar per transaction. For the rest of the quarter, we still had challenging traffic.

Speaker Change: Some of those trends continue to persist.

Speaker Change: So far in the quarter to date basis.

Speaker Change: But again, even within the quarter some of those challenges that we saw from the web traffic.

Speaker Change: Especially in February.

Speaker Change: So very strong conversion related to our Valentines day product and we saw a.

Speaker Change: Growth in dollar per transaction for the rest of the quarter.

Speaker Change: Or still we have challenging traffic.

Speaker Change: Even though we improved our dollar per transaction on a smaller level or conversion.

Speaker Change: Lower and are not enough to offset some of the challenges from the from the traffic perspective.

Voin Todorovic: Even though we improved our dollar per transaction on a smaller level, our conversion was lower and not enough to offset some of the challenges from the traffic perspective. We continue to work on different initiatives to improve our traffic opportunities and drive more visits to the website. But again, we may have some choppiness throughout the year as we continue to focus on this particularly challenging piece of our business at this point. There may also be some tradeoffs as we continue to see very strong DPT in our locations, but there may be some shifting where people are more focused on the entry price points and some lower-priced products compared to what was done in the past, again speaking from the overall economic situation. But we feel good about the engagement we are seeing with our guests and the overall things that we have planned for the rest of the year.

Speaker Change: We continue to work on different initiatives to improve our traffic opportunities and drive more visits to the web.

Speaker Change: Websites, but again, we may have some choppiness throughout the year as we continue to to.

Speaker Change: Focus on this particularly challenging.

Speaker Change: A piece of our business at this point as we think about some of that dollar per transaction that we are seeing the traffic across the board.

Speaker Change: <unk> was slightly lower than last year, some of that could be related to the overall economic environment.

There may be also some trade offs as you know we continue to see very strong DPT in outer locations, but there may be some shifting where people are more focused on the entry price points and some lower price.

Speaker Change: Product.

Speaker Change: For what was done in the past again speaking from the overall economic situation, but we feel good about the engagement, we are seeing with our guests and the overall.

Speaker Change: Things that we have in our line for the rest of the year a couple of things just a little color on that is that of course ware.

Sharon Price John: Yeah, a couple of things, just a little color on that is that, of course, when we see traffic softness, we kick into gear to understand what's going on the best we can from a research perspective with the consumers. It's not uncommon, as I mentioned in my remarks, that when you are doing a comprehensive integration across your entire ecosystem to try to raise the water level, there can be some hiccups in the process, particularly as it relates to the web.

Speaker Change: You know when we see traffic softness we kick into gear to understand what's going on in the best we can from a research perspective with the consumers.

Speaker Change: You know what it is.

Speaker Change: Not uncommon as I mentioned in my remarks that when you are doing a comprehensive integration of across your entire ecosystem to try to raise the water level. There's there can be some hiccups in the process, particularly as it relates to our two web but that external traffic piece that.

Sharon Price John: But that external traffic piece, that's also related to the rollout of a new brand campaign, takes you a minute to kind of get some traction on that. But separately, an interesting piece that was brought to our attention is that we're down from an organic search perspective. We've gone through a lot of data to try to understand what's going on with that. The cause of the brand's success over the past two to three years, this is the only assumption that we have, is that we're being conquested at a much higher rate on search from a search engine perspective.

Speaker Change: Also related to the rollout of a new brand campaign takes you a minute to kind of get some traction on that but separately an interesting piece is that oh that we that we've been.

And then brought to our attention is that from an organic where downtime in organic search perspective, we've gone into a lot of data to try to understand what's going on with that because of the brand's success over the past two to three years. This is the only assumption that we have is that we're being conquest. It at a much higher rate on search for me.

Speaker Change: Search engines perspective, and so we're gonna have to work through what we do and how we manage them assuring that our brand Pops up when people are actually searching our brands.

Sharon Price John: So we're going to have to work through what we do and how we manage, ensuring that our brand pops up when people are actually searching for it. Just, you know, sort of an indicator of the new economy.

Speaker Change: Just a sort of a an indicator of the new economy.

Speaker Change: Okay.

Speaker Change: Right Yeah, that's very helpful. Appreciate the color there.

Gregory Thomas Gibas: Right, yeah, that's very helpful. Appreciate the color there. And you know, I guess as a follow-up, if you could just touch on what drove that elevated or unfavorable expense timing in Q1, and maybe how we should expect expenses to trend in the coming quarters. Would we expect a kind of return to normalcy? Yeah, so timing of SG&A expenses.

Speaker Change: And I guess as a follow up.

Speaker Change: Could you just touch on what drove that elevated are all favorable expense timing in Q1, and maybe how we should expect.

Speaker Change: The trend in the coming quarters would be expect kind of returned to normalcy.

Voin Todorovic: Yeah, so the timing of SG&A expenses, as we called out, you know, in Q1 is a little bit more elevated as we had some incremental expenses related to signage and marketing supplies related to the start of the new campaign, The Stuff You Love. We also had some timing of certain payroll expenses from Q1 to Q2, and as I mentioned in the call, we expect SG&A on a full-year basis to be at or below last year's rates, so we feel good about the overall SG&A on a full-year basis. Just there is noise created with the calendar shift and a couple of these things that I highlighted that are creating timing between quarters.

Speaker Change: Yes, so timing of SG&A expenses.

Speaker Change: As we called out in.

Speaker Change: In Q1 was a little bit more elevated as we have some incremental expenses related to signage and marketing supplies related to the start of that.

Speaker Change: New campaign the stuff you love.

Speaker Change: He also had some timing of certain payroll expenses Q1 to Q2 and as I mentioned in the call.

Speaker Change: We expect SG&A on a full year basis, there'll be at or below last year right. So we feel good about the overall SG&A on a full year basis. Just there is noise created with the calendar shift and a couple of these things that I've highlighted that's creating timing between quarters.

Speaker Change: Great. Thanks very much.

Speaker Change: Thank you. Our next question comes from the line of Steve Silver with Argus Research. Please proceed with your question.

Steven Silver: Thank you. Our next question comes from the line of Steve Silver with Argus Research. Please proceed with your question.

Steven Silver: Good morning, everybody, and thanks for taking the questions. Congratulations on the international expansion in the markets. I guess my question is, over the course of the year, should we expect that the new international markets that are being penetrated will largely focus on building density in fewer markets, or are the goals really to increase on a geographic level more broadly?

Speaker Change: Good morning, everybody and thanks for taking the questions.

Steven Silver: Congratulations on the our international expansion and then Mark I guess my question is over the course of the year should we expect that the to new international markets that are being penetrated will largely focus on building density in fewer markets or the goal is to really.

Speaker Change: The increase.

Speaker Change: Graphic level more broadly.

Mark I: Well the short answer is both.

Speaker Change: Our goal is really to increase the penetration in the existing markets and just as a reminder, our first store in Italy open late September of last year. So just to be again now late may with six locations.

Voin Todorovic: Well, the short answer is both, and our goal is really to increase penetration in existing markets. And just as a reminder, our first store in Italy opened late September of last year. So just to be, again, now late May with six locations in six different cities in Italy, it's an accomplishment and testament to the brand and the new market. But we are also engaged in discussions with different partners around the world.

Speaker Change: Six different cities in Italy, it's in a car.

And Testament to the brand in a new market, but we are also engaged in.

Speaker Change: In discussions with different.

Speaker Change: Partners around the globe and we continue to.

Voin Todorovic: And we continue to work on expanding, not just in the existing markets, but in new markets, and more to come as those deals are being worked on. But we are definitely excited about the opportunity and that we are gonna be adding at least 50 net new locations for the rest of the year.

Speaker Change: Work on expanding not just in the existing markets, but as you know expanding in new markets and more to come as those deals are being worked on but we are definitely excited about the opportunity in that regard.

Steven Silver: Great, that's helpful. Thank you. And one more, if I can.

Speaker Change: Going to be adding at least 15 net new locations for the rest of the year.

Speaker Change: Great. That's helpful. Thank you and one more if I can.

Sharon Price John: So the recent press release announcing the collaboration around the new movie, If. I know over the holidays last year you guys mentioned some strategic initiatives in terms of tying in the Mary Mission movies with the theater chains showing them. I'm just curious as to whether there's anything going on around this movie launch to just drive traffic from the theater to the store where those tie-ins are possible.

Speaker Change: So the the recent press release announcing the collaboration around the new movie if I know over the holidays last year, you guys mentioned some strategic initiatives in terms of tying in the Merry mission movies with the theater chain showing them just curious as to whether there's anything going on.

Sharon Price John: Yes. A good question, Steve.

Speaker Change: Around this movie launch.

Speaker Change: Just to work together to just try it drive traffic from the theater to the store.

Where those tie ins are possible.

Speaker Change: Yes.

Sharon Price John: We have been doing that for many, many years. We often talk about the co-location of Build-A-Bear workshops in malls with theaters and that that's often part of a traditional trip on maybe a weekend to see the opening of a kid's film. If you swing by Build-A-Bear, you get your stuff down there before or after.

Steven Silver: Good question, Steve that we have been doing that for many many years. So we often talk about the co location of.

Speaker Change: <unk> build a bear workshops in malls with with theaters and that that's often part of a traditional trip on maybe a weekend to see the opening of a kids film as you swing by build a bear you get yourself out there before or after and.

Speaker Change: You know, we've even partnered with theaters in the past and in different circumstances as well as with Cinemark last year with the launch of our own Merry mission film for the holidays.

Sharon Price John: We've even partnered with theaters in the past under different circumstances, as well as with Cinemark last year with the launch of our own Merry Mission film for the holidays. This IF collaboration is a little more integrated than some of the collaborations that we've had in the past, which used to be a real staple of our business in the pre-COVID world. Just the clear opportunity to connect that concept of going to the theater, buying the lead character at Build-A-Bear, and really leveraging much of this usually hundreds of millions of dollars in marketing that goes behind these theatrical releases.

Speaker Change: This is collaboration is.

It's a little more integrated than the type of some of the collaborations that we've had in the past which used to be a real staple of our business in the pre Covid World I'm, just the clear opportunity to connect that concept of going to the theater buying the lead character.

Speaker Change: The bear and really leveraging much of this usually hundreds of hundreds of millions of dollars in marketing that goes behind these theatrical releases. The if collaboration is.

Sharon Price John: The if collaboration is, And we have Blue, the lead character in all of the stores. Of course, we're doing marketing that is in conjunction with the theatrical marketing, but we've also taken it to a place where, in certain locations, Small America, there's one in New York, where it is a real next-level type of experience. And we've tricked out the store so that you get an opportunity to have a feeling as if you're making your own imaginary friend in an entirely different way, utilizing this heart ceremony that John helped us to create.

Speaker Change: And we have the blue the fleet character in all of the stores of course, we're doing marketing debt that is in conjunction with those Fiat with the theatrical marketing, but we've also taken it to a place where in certain locations Mall of America. There's one in New York, where it is a real next level type of.

Speaker Change: Experienced and we've tricked out the store, where you get an opportunity to have a feeling as if you're making your own imaginary friend in an entirely different way utilizing this heart ceremony that John helped us to create them and they've been extremely Ah.

Sharon Price John: And they've been extremely, I think, excited about this. I mean, John's been a... personally a part of the marketing for this, you know, what has been a major release for Paramount, and they're great partners for us. So again, at the end of this question, I think where you're going is this idea between the artistic content, the creation of emotional connections, memories, all of that goes together, which also leads to not only why we partner with key entertainment companies but why we create our own entertainment.

Speaker Change: I think I'm excited about this I mean, John has been.

Speaker Change: Personally are part of the marketing for this Oh, you know what has it been a major release for Paramount and we they are great partners for us so.

Again the con.

Speaker Change: Net of this question I think where you're going is this idea between the astral content the creation of emotional connection memories all of that goes together, which also leads to not only why we partner with key.

Speaker Change: Key entertainment companies, but why we create our own entertainment.

Speaker Change: Great, that's where I was going to miss Thank you so much for the color.

Steven Silver: Great, that's where I was going. Thank you so much for the color.

Speaker Change: Yes.

Keegan Cox: Thank you. Ladies and gentlemen, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Keegan Cox with DA Davidson. Please proceed with your question.

Speaker Change: Thank you, ladies and gentlemen, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Keegan talks with D. A Davidson. Please proceed with your question.

Speaker Change: Good morning, Thanks for taking my question.

Keegan Cox: Good morning. Thanks for taking my question. I just wanted to ask a little bit, it kind of seems like you guys are seeing a trade down to the lower end and, like you said, struggle or... What gives you confidence in the spending environment to maintain your full-year guidance for the back-end? Is it like demand picking up or just executing on your initiative?

Speaker Change: Good morning.

Speaker Change: I just wanted to ask a little bit it kind of seems like you guys are seeing a trade down to the lower end and like you said struggle with it.

Speaker Change: Hmm issues on more dollars per transaction, but what gives you confidence in the spending environment to maintain your full year guidance for the back half.

Speaker Change: Is it all like demand picking up are just executing on your initiative.

Voin Todorovic: Thanks for the question, and as we shared on the last call, we expected this year to grow on a full-year basis, and it was back half-weighted. We also talked about the expansion from the store count perspective as we are adding net 50 locations both between partner operated as well as some of the domestic locations that again are going to be in the second half of the year.

Speaker Change: Thanks for the question.

Speaker Change: You said on the last call we expected.

Speaker Change: This year to grow on a full year basis than it was back half weighted we also talked about the expansion from the store count perspective, as we are adding that 50.

Speaker Change: Our locations both between partner operated as well as some of the domestic locations. There's again, there's going to be in the second half of the year. So we feel that that's going on.

Speaker Change: <unk> helped drive some of that growth. In addition, we had some softness in Q4 last year. So we believe that later in the year, we have some easier comparison.

Voin Todorovic: So we feel that you know that's going to help drive some of that growth. In addition, we had some softness in Q4 last year, so we believe that later in the year we have some easier comparisons. Now as we think about some of the choppiness and softness in the overall economic environment, you know we are definitely cognizant of those, but we also believe in the brand and things that we are able to achieve.

Speaker Change: Now as we think about some of the Choppiness and softness from the overall economic environment, we are definitely cognizant of dose.

Speaker Change: But we also believe in the brand and things that we are able to achieve this we are seeing some.

Voin Todorovic: We are seeing some strength and again we continue to deliver from the both dollar per transaction basis, continue to drive strong performance. Now we also had last couple of years of record results and some elevated numbers so some of the traffic and some comparison as we think especially earlier in the year and we are anniversary some of the product launches and some of the timing when things were introduced or how the inventory was coming in after COVID that creates some timing but you know we feel good about the numbers that we are projecting on a full year basis and you know like with the expectations that we are going to be able to recover some of the losses and improve on our web demand that's been a challenge for us so far this year.

Speaker Change: Strength and again be.

Speaker Change: <unk> continued to deliver from the boat dollar per transaction basis continues to drive strong performance now.

Speaker Change: We also had last couple of years of record results and some elevated.

Numbers, so some of the traffic and some comparison as we think especially earlier.

Speaker Change: Earlier in the year and we are.

Speaker Change: Anniversarying some of the product launches and some of the timing.

Speaker Change: Things were introduced or how the inventory was coming in after call. It does create some timing, but we feel.

Speaker Change: Good about the numbers that we are projecting on a full year basis, and you know like with your expectations that we are going to be able to recover some of the losses and improve on our web demand thats been a challenge for us so far this year.

Speaker Change: Thank you.

Speaker Change: Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to MS. Jones for any final comments.

Sharon Price John: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Ms. John for any final comments.

Sharon Price John: Thank you so much for joining us today, and we look forward to speaking with you next quarter.

MS. Jones: Thank you so much for joining us today, and we look forward to speaking with you next quarter.

Speaker Change: Okay.

Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.