Q2 2024 Build-A-Bear Workshop Inc Earnings Call

August 29, 2024

Speaker Change: Greetings and welcome to the Builder Bear Workshop 2nd quarter of 2024 earnings conference call. At this time, all participants are an illicit only mode. A brief question and answer session will follow the formal presentation.

Operator: 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Operator: A brief question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker Change: If anyone to require operator assistance during the conference, please press star zero on your telephone keypad.

Gary Schnierow: It is now my pleasure to introduce your host, Gary Schnierow, Investor Relations. Thank you. Good morning, everyone, and welcome to Build-A-Bear's second quarter 2024 earnings conference call. With us today, our Build-A-Bear's CEO, Sharon Price-John, and CFO, Voin Todorovic.

Speaker Change: As your reminder, this conference is be recorded.

Speaker Change: It is now my pleasure to introduce your host, Gary Schnierow and Best of Relations. Thank you sir, you may begin.

Gary Schnierow: Thank you, good morning everyone and welcome to Build a Bear Second Quarter 2024 earnings conference call.

Gary Schnierow: with us today are Bill DeBare CEO, Sharon Price John, and CFO, Voin Todorovic. During this call, we'll refer to forward-looking statements that are subject to risk and uncertainties.

Gary Schnierow: 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 factor section. We undertake no obligations to update any forward-looking statement.

Speaker Change: Actual results could differ materially.

Speaker Change: Police refer to our forms of 10K and 10Q, including the risk factor section. We undertake no obligation to update any forward-looking statement.

Gary Schnierow: 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 release, which is distributed and available to the public on the investor relations website.

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

Sharon Price-John: And now I'll turn the call over to Sharon.

Sharon Price-John: Thank you, Gary. Good morning, and thanks for joining us for Build-A-Bear's second quarter fiscal 2024 earnings call. For the past several years, we have shared our strategy to evolve the company's business model with the goal of sustained profitable growth by leveraging the power and affinity of the Build-A-Bear brand. We have occasionally referred to this as approaching the business as a way to expand into new people, new places, and with new types of product offerings. With that in mind, over the past few years, we have worked to extend Build-A-Bear's consumer base beyond kids to take advantage of our growing multi-generational appeal.

Speaker Change: and now I'll turn the call over to Sharon. Thank you, Gary. Good morning and thanks for joining us for a build of theirs. Second quarter fiscal 2024 earnings call.

Sharon: For the past several years, we have shared our strategy to evolve the company's business model with the goal of sustained profitable growth by leveraging the power and affinity of the Build of Airbrand.

Sharon: We have occasionally referred to this as approaching the business as a way to expand into new people, new places, and with new types of products offering.

Speaker Change: With that in mind, over the past few years, we have worked to extend, build a bear's consumer base, beyond kids, to take advantage of our growing multi-generational appeal. We have done this with primarily collectibles, trend products, licensing and gifting.

Sharon Price-John: We have done this with primarily collectibles, trend products, licensing, and gifting, resulting in an increase in our teen and adult business now representing approximately 40% of our total retail sales. We have continued to drive our consumers' first engagement with Build-A-Bear at its experience locations by broadening our geographic reach and store types beyond our historical U.S.-focused, mall-based traditional footprint. We have become more global with more store types in a variety of shopping environments with new business models. This effort has led to an acceleration of store growth, and by the end of fiscal 2024, we expect to have opened nearly 90 net new locations over the past two years, all while continuing to maintain and integrate with a meaningful web business.

Speaker Change: Resulting in an increase in our teen and adult business now representing approximately 40% of our total retail sales.

Speaker Change: We have continued to drive our consumers' first engagement with Bill DeBair at its experience locations. By broadening our geographic reach and store types beyond our historical, U.S. focused, mall-based traditional footprint.

Speaker Change: We had the come more global with more store types in a variety of shopping environments with new business models.

Speaker Change: This effort has led to an acceleration of store growth, and by the end of fiscal 2024, we expect to have opened nearly 90 net new locations over the past two years. All while continuing to maintain and integrate with a meaningful web business.

Sharon Price-John: And we are evolving product categories beyond the iconic make-your-own customizable cadre of characters, with new introductions like the successful Many Beans collectibles, which have already sold over one half million units since their launch earlier this year. These efforts have resulted in a more diversified business, which, when coupled with more efficient operations, has envisioned delivered more products in more places to more people at a consistently higher level of profitability. With strong cash flow and no borrowing, the company has been able to both invest in the future and return capital to shareholders. In fact, over the past three plus years, Build-A-Bear has enjoyed record-breaking results, including an unprecedented period of profitability compared to any other time in its quarter-century history.

Speaker Change: and we are evolving product categories beyond the iconic, make your own customizable cadre of characters with new introduction, like the successful many beings collectible.

Speaker Change: which have already sold over one half million units since their launch earlier this year.

Speaker Change: These efforts have resulted in a more diversified business, which, when coupled with more fish and operations, has, as envisioned, delivered more products in more places to more people at a consistently higher level of profitability.

Speaker Change: with Strong Cash Flow and No Barling, the company has been able to both invest in the future and return capital to shareholders.

Speaker Change: In fact, over the past three-plus years, Bill DeBare has enjoyed record-breaking results, including an unprecedented period of profitability compared to any other time in its quarter-century history.

Sharon Price-John: Aligned with this trend, I'd like to share some highlights of our 2024 second quarter. These results represent the best second quarter in the company's history. Revenues of nearly $112 million, an increase of nearly 2.5%, and pre-tax income of more than $11 million, representing growth of over 10%. These results, coupled with strong third-quarter-to-date trends and robust back-half plans, support the reiteration of our full year guidance. Of note, even when compared to a strong second quarter in 2023 and in the wake of negative reported national retail traffic trends, our unique and memorable retail experience, which so often serves as the first step in the important lifetime consumer journey, remained solid.

Speaker Change: Aligned with this trend, I'd like to share some highlights of our 2024 Second Quarter. These results represent the best Second Quarter in the company's history.

Speaker Change: Revenies of nearly $112 million, an increase of nearly 2.5% and pre-text income of more than $11 million, representing growth of over 10%.

Speaker Change: These results coupled with strong 3rd quarter-to-date trends and robust back-half plans support the reiteration of our full-year guidance.

Speaker Change: of Note.

Speaker Change: Even when compared to a strong second quarter in 2023, and in the wake of negative reported national retail traffic trends, are unique and memorable retail experience.

Speaker Change: which so often serves as the first step in the important lifetime consumer journey, remained solid. Conversely, given some of the ongoing systems enhancement and products launch timing, buildabair.com's overall web demand results were significantly down for the quarter.

Sharon Price-John: Conversely, given some of the ongoing systems enhancements and product launch timing, Build-A-Bear.com's overall web-demand results were significantly down for the quarter. Fortunately, the challenges driven by shifts of popular online product launches versus 2023 are expected to be mitigated over the course of the total fiscal year, as we have already started to see in early third quarter. On balance, the second quarter delivered strong earnings per share, with a much higher level of profitability when compared to any pre-COVID second quarter over the past 15 years. We also remain committed to returning capital to shareholders via a combination of share repurchases and quarterly dividends, totaling over $12 million in the second quarter and $24 million through the first half of 2024.

Speaker Change: Fortunately, the challenges driven by shifts of popular online product launches vs. 2023 are expected to be mitigated over the course of the total fiscal year, as we have already started to see in early third quarter.

Speaker Change: On balance, second quarter delivered strong earnings per share with a much higher level of profitability when compared to any pre-COVID second quarter over the past 15 years.

Speaker Change: We also remain committed to returning capital to shareholders via a combination of share repurchases and quarterly dividends totaling over $12 million in the second quarter and $24 million through the first half of 2024.

Sharon Price-John: Again, overall, we believe these sustained results are largely associated with the continued focus on the execution of our multi-year three-pronged strategy designed to deliver long-term profitable growth grounded in our most valuable asset, the Build-A-Bear brand.

Speaker Change: Again, overall, we believe these sustained results are largely associated with the continued focus on the execution of our multi-year, three-pronged strategy designed to deliver long-term profitable growth grounded in our most valuable asset, the Build of Air Brand.

Sharon Price-John: Our plans to systematically monetize the awareness and power of the brand include. One, based on the long-held belief of our founder that a teddy bear hug is understood in every language, our first strategic pillar is dedicated to expansion through the experience location. This well-researched global retail scaling effort represents not only the evolution of store types, but also of financial model, including a corporately operated model, partner operated model, and franchising. While the company has operated in select international markets for decades, a recent post-COVID effort has resulted in a multi-country rollout, mostly through our partner-operated business model, in both continental Europe and South America.

Speaker Change: Our plans to systematically monetize the awareness and power of the brand includes one. Based on the long-held belief of our founder that a teddy bear hug is understood in every language, our first strategic pillar is dedicated to expansion through the experience location.

Speaker Change: This well-researched global retail scaling effort represents not only the evolution of store types, but also of financial model, including a corporately operated model, partner operated model and franchising.

Speaker Change: While the company has operated in select international markets for decades, a recent post-COVID effort has resulted in a multi-country rollout, mostly through our partner operated business model, in both continental Europe and South America.

Sharon Price-John: In Europe, beyond our long-standing corporate operation in the UK, we opened new locations across Italy and France via our capital-like partner-operated business model. In Italy, we partnered with the well-known toy retail and entertainment company, Gioci Prisiozi, with plans to introduce a combination of stand-alone workshops and shop-in-shop inside their own toy stores, as well as families' toy stores, through a shared relationship with the multi-billion dollar global conglomerate Reliance Industry. We also opened our first partner-operated location in France at the iconic Paris department store Galeries Lafayette in Chancelise, in conjunction with longtime partner FAO Schwartz, with whom we operate the recently expanded and very successful Rockefeller Plaza shop in New York City.

Speaker Change: In Europe, beyond our longstanding corporate operation in the U.T., we opened new locations across Italy and France via our capital-like partner-operated business model.

Speaker Change: In Italy, we partnered with the well-known toy retail and entertainment company.

Speaker Change: Gioci Priseozy, with plans to introduce a combination of standalone workshop and shop and shop inside their own toy stores, as well as family store stores through a shared relationship with the multi-billion dollar global conglomerate reliance industry.

Speaker Change: We also opened our first Partner Operating Location in France at the iconic Paris Department d'Orte Galleries, Lafayette, and Jean-Solise.

Speaker Change: In conjunction with longtime partner FAU short, with whom we operate the recently expanded and very successful Rockefeller Plaza Shopping Shop in New York City.

Sharon Price-John: As a part of our continued U.S. Expansion and in conjunction with our successful tourist location strategy, we opened two Las Vegas shop and shops with our new partner WH Smith, located inside their Welcome to Las Vegas gift shops at the Forum and Link Promenade. We also opened in the historic Riggly Building on Chicago's famed Magnificent Mile. This store features a specially procured line of licensed branded and themed products to appeal to the Windy City guests, just as we do with many of our other tourist destinations, which generally serves as a meaningful contributor to our comparative overperformance in this type of location on almost every key metric.

Speaker Change: As a part of our continued U.S. expansion, and in conjunction with our successful tourist location strategy, we opened two Las Vegas shopping shops with our new partner WH Smith.

Speaker Change: Located inside their welcome to Las Vegas gift shots at the forum and link promenade.

Speaker Change: We also opened in historic, regularly building on Chicago's famed Magnificent Mile.

Speaker Change: This door features a specially-prepared line of license, branded and theme products to appeal to the Wendy City guests, just as we do with many of our other tourist destinations, which generally serves as a meaningful contributor to our comparative over-performance in this type of location on almost every key metric.

Sharon Price-John: When you include new franchise locations with existing Gulf State and Chilean partners, we added a total of 17 net new locations for the quarter and 23 for the first half across all three business models. Corporately operated, partner operated, and franchise, which keeps us on track with our guidance to open at least 50 new experience locations for the fiscal year. In addition to the 37 locations we opened last fiscal year, expanding our global footprint to over 20 countries.

Speaker Change: Wynnow Include New franchise locations with existing Gulf States and Chilean partners. We added a total of 17 net new locations for the quarter and 23 for the first half across all three business models. Corporately operated, partner operated, and franchise.

Speaker Change: which keeps us on track with our guidance to open at least 50 new experience locations for the fiscal year. In addition to the 37 locations we opened last fiscal year.

Speaker Change: Explanting our global footprint to over 20 countries.

Sharon Price-John: Two, the next initiative is the acceleration of a comprehensive digital transformation for the company, ranging from overall corporate IT upgrades to website integration to content creation, which we began about a decade ago to unlock value from improved processes and new systems across the entire enterprise. One of the key objectives is to become a true omnichannel entity, which is when a company provides a consistent and synergistic shopping experience across all channels, including in-store, mobile, and online. While we have many of the tools in place to drive greater integration between buildabear.com and Build-A-Bear Workshop, especially when it comes to efforts like buy-on-line ship from store, we are still in the process of fully integrating our guest first party data and shopping history with synergistic marketing and product offerings across the enterprise.

Speaker Change: 2.

Speaker Change: The next initiative is the acceleration of a comprehensive digital transformation for the company, ranging from overall corporate IT upgrades to website integration to content creation.

Speaker Change: which we began about a decade ago to unlock value from improved processes and new systems across the entire enterprise.

Speaker Change: One of the key objectives is to become a true on-the-channel entity, which is when a company provides a consistent and synergistic shopping experience across all channels, including Instor, Mobile, and Online.

Speaker Change: We have many of the tools in place to drive greater integration between BuildAvera.com and BuildAvera Workshop, especially when it comes to efforts like by online chip from store. We are still in the process of fully integrating our guest first party data and shopping history with synergistic marketing and product offerings across the enterprise.

Sharon Price-John: The omnichannel model, when fully executed, has been proven to unleash the combined power of in-store e-commerce, e-mail, social media, loyalty, and traditional communications tactics. Through a more personalized unified vision, ultimately driving repeat purchase. When you consider that each year up to 50 million people enter a Build-A-Bear Workshop and we have an estimated 50 million annual visits to our website, combined with an 85% capture rate in stores and over 20 million first party data records. You can understand why we believe this is such an important part of our strategic efforts. However, it is not uncommon for the learning curve associated with implementing and optimizing omnichannel integration tools to be somewhat disruptive.

Speaker Change: The Omni-Channel model when fully executed has been proven to unleash combined power of in-storey commerce, email, social media, loyalty, and traditional communications tactics. They're more personalized, unified vision, ultimately driving repeat purchase.

Speaker Change: When you consider that each year, up to 50 million people in our build-a-bare workshop.

Speaker Change: and we have an estimated 50 million annual visits to our website, combined with an 85% capture rate in stores and over 20 million first party data records. You can understand why we believe this is such an important part of our strategic effort.

Speaker Change: However, it is not in common for the learning curve associated with implementing and optimizing on the channel integration tool to be somewhat disruptive.

Sharon Price-John: Therefore, we have been working with partners, such as Salesforce, as well as other consultants, to identify, prioritize, and implement opportunities. As an example, on our last call, we shared that we had a significant climb in our web traffic, which was deemed to be largely associated with a decrease in organic search linked to competitive conquesting. Since then, our web traffic has increased, and we have enjoyed improved organic search results. We believe this is due to a combination of changes to our search terms, improvements to our SEO strategy, the viral popularity of key D-product launches, and the positive trickle-down impact of the upper funnel investment we made in the Stuff You Love campaign earlier this year.

Speaker Change: Therefore, we have been working with partners, such as Salesforce, as well as other consultants, to identify, prioritize, and implement opportunity.

Speaker Change: As an example, on our last call, we shared that we had a significant kind in our web traffic, which was deemed to be largely associated with a decrease in organic search linked to competitive conquesting.

Speaker Change: Since then, our web traffic has increased and we have enjoyed improved organic search results.

Speaker Change: We believe this is due to a combination of changes to our search terms, improvements to our SEO strategy, the viral popularity of key new product launches, and the positive trickle down impact of the upper funnel investment we made in the stuff you love campaign earlier this year.

Sharon Price-John: While we are encouraged by these recent results, we also recognize we have more work to do to address the larger web opportunity and plan to continue to stay focused on our digital transformation and omnichannel integration improvements to drive the business.

Speaker Change: While we are encouraged by these recent results, we also recognize we have more work to do to address the larger web opportunity and plan to continue to stay focused on our digital transformation and on the channel integration improvements to drive the business.

Sharon Price-John: Three, our last pillar is our continued fiscal focus, designed to enable us to make strategic investments to leverage the brand to drive profitable growth while returning value to our shareholders. With this in mind, given the company's meaningful improvement in cash flow over the past few years, we have been able to make a large number of long-term strategic decisions across the company. Touching products, brand, partnerships, content, talent, and infrastructure, all while returning over $116 million to shareholders through dividends and stock repurchases. As we look to the second half of the year, I am pleased to share that, with the backdrop of the ongoing implementation of the above strategy, our third quarter-to-date results have been strong.

Speaker Change: 3. Our last pillar is our continued fiscal focus, designed to enable us to make strategic investments to leverage the brand to drive profitable growth while returning value to our shareholders.

Speaker Change: With this in mind, given the company's meaningful improvement in cash flow over the past few years, we've been able to make a large number of long-term, strategic decisions across the company, touching products, ran, partnership, content, talent and infrastructure.

Speaker Change: All while returning over $116 million to shareholders through dividends and stop repurchases.

Speaker Change: As we look to the second half of the year, I'm pleased to share that with the backdrop of the ongoing implementation of the above strategies. Our third quarter to date results have been strong.

Sharon Price-John: And driven largely by our holiday-wing product line, we have posted solid increases in-store and double-digit increases online. Interestingly, Halloween seasonal product, in general, has been growing in both interest and revenue in recent years, according to the National Retail Federation, and Build-A-Bear has seen the same phenomenon. Having sold out of key items well before October 31st in 2023, the company made some strategic choices to focus on this year's Halloween season with more offerings, deeper inventory, and an earlier launch. Leading with a new glow-in-the-dark assortment, a Sanria collection of exclusive Halloween designs, and the reintroduction of a popular replica of the classic 2008 pumpkin kitty from our vault of favorite furry friends, we have planned on kicking off the season in mid-August.

Speaker Change: and Driven Largely by our following wing product line, we have posted solid increases in store and double digit increases online.

Speaker Change: Interestingly, Halloween seasonal product in general has been growing in both interest and revenue in recent years, according to the National Retail Federation. And build a bear head seen the same phenomenon.

Speaker Change: Having sold out a C.I.N.S well before October 31st in 2023, the company made some strategic choices to focus on this year's following season with more offerings, deeper inventory, and an earlier launch.

Speaker Change: Leading with a new glow-in-the-dark assortment, a San Rhea collection of exclusive Halloween designs and the reintroduction of a popular replica of the classic 2008 pumpkin kitty from our vault of favorite furry friends. We at planned on kicking off the season in mid-August.

Sharon Price-John: However, due to an unauthorized leak of a specific product imagery, we accelerated the launch and shared the situation in a press release. The social media and in a direct mail to the over 25,000 plus fans that had already provided contact information to be informed about the Pumpkin Kitty relaunch. These efforts led to an estimated 285 million PR and median pressions and a viral event contributing to the sellout of the first phases of pumpkin kitty, helping to drive record quarter-to-date sale. Our remaining pipeline for the third quarter includes additional exciting Halloween introductions and the launch of a broadened NFL product offering, the celebration of National Teddy Bear Day on September 9th with in-store events and special promotion, an enhanced relationship with Varsity Spirit, the worldwide leading brand for competitive cheerleading, which includes pop-up shops at cheer camp.

Speaker Change: However, due to an an authorized leak of a specific product imagery, we accelerated the launch and shared the situation in a press release.

Speaker Change: The Association Media and in a direct mail to the over 25,000 plus fans that had already provided contact information to be informed about the Pumpkin Kitty relaunch.

Speaker Change: These efforts led to an estimated 285 million PR and median pressures in a viral event contributing to the sellout of the first phases of pumpkin kidney, helping to drive record-quarter to date sale.

Speaker Change: Our remaining pipeline for the third quarter includes additional exciting Halloween introductions.

Speaker Change: The launch of a broadened NFL product offering the celebration of national teddy bear day on September 9 with indoor events and special promotion.

Speaker Change: An enhanced relationship with varsity spirit, the worldwide leading brand for competitive cheerleading, which includes pop-up chops at Cheer Camp.

Sharon Price-John: And reflecting on our exciting press release earlier today, the introduction of an exclusive 50th anniversary Hello Kitty make your own plush, as well as our November plans to open a first of its kind, Build-A-Bear and Hello Kitty and friends workshop with our partner, Sanrio in the premier Westfield Century City Shopping Center in Los Angeles. Overall, we delivered solid second quarter results, although we saw some challenges with web demand. As we continue to execute on the strategic initiatives, inclusive of the continued omnichannel integration, we expect to see positive momentum as the year progresses.

Speaker Change: and reflecting on our exciting press release earlier today, the introduction of an exclusive 50th anniversary Hello Kitty Make Your Own Flush.

Speaker Change: as well as our November plans to open a first-of-its-kind, build-a-bare and hello-kitty and friends workshop with our partners Sanrio in the premier Weftfield Century City shopping center in Los Angeles.

Speaker Change: Overall, we delivered solid second-quarter results, although we saw some challenges with web demand.

Speaker Change: As we continue to execute on the strategic initiatives, inclusive of the continued on-ney channel integration, we expect to see positive momentum as the year progresses.

Sharon Price-John: In closing, while we are very proud of this organization as a pioneer in the creation of experiential retail, it is always nice to receive external validation. As we recently did with Newsweek's third annual ranking of America's Best Retailers, we not only had one of the higher rankings in the list, but were ranked as the number one toy retailer. With that, I would like to thank all of the Build-A-Bear associates, guests, and partners for continuing to deliver record results as we work toward our mission of adding a little more heart to life.

Speaker Change: In closing, while we're very proud of this organization as a pioneer in the creation of experiential retail, it is always nice to receive external validation.

Speaker Change: As we recently did with Newsweek's third annual ranking of America's Best Retailers.

Speaker Change: We not only had one of the higher rankings in the list, but we're ranked as the number one toy retailer.

Bill DeBear: With that, I would like to thank all of the Bill DeBear Associates, guests, and partners for continuing the deliver record result as we work toward our mission of adding a little more heart to us.

Voin Todorovic: Moin? Thank you, Sharon, and good morning, everyone. It's good to speak with you again today to share our second quarter 2020-24 results. Before I touch on the financials from the past quarter, I want to recap a few highlights. This was our best ever second quarter, as we continue to deliver on our strategic initiatives. Even though we faced headwinds working through transitory web challenges, our strong results reflect the ongoing diversification of the business. Also, as the result of consistent performance and strong cash flow generation, we continue to return capital to shareholders. We paid our second quarter with dividend, and during the quarter spent $9.1 million to repair shares.

Bill DeBear: Voin.

Speaker Change: Thank you, Sharon, and good morning, everyone. It's good to speak with you again today to share our second quarter to 1-8-24 results.

Speaker Change: Before I touch on the financials from the past border, I want to recap a few highlights.

Speaker Change: This was our best ever second quarter, as we continue to deliver on our strategic initiatives.

Speaker Change: Even though we've faced headwinds working through transitory web challenges, our strong results reflect the ongoing diversification of the business.

Speaker Change: Also is the result of consistent performance and strong cash flow generation.

Speaker Change: We continue to return capital to shareholders.

Speaker Change: We paid our second quarterly dividend and during the quarter spend $9.1 million to repurchase fairs.

Voin Todorovic: In addition, since the end of the second quarter, we have spent $1.7 million. On a year-to-date basis, we have repurchased over 5% of our outstanding share count.

Speaker Change: In addition, since the end of the second quarter we have spent 1.7 million dollars.

Speaker Change: On the year today basis, we have repurchased over 5% of our outstanding share counts.

Voin Todorovic: Now moving to second quarter results. For the quarter, total revenues were $111.8 million, up 2.4% year-over-year. Net retail sales were flat at $103.5 million. A 28.2% decline in web demand was offset by growth at existing stores plus the addition of new locations. As we discussed on our Q1 call, last year's 53rd week caught a shift in comparable weeks this year. First quarter's impact was mostly reversed during the second quarter, benefiting store sales. Additionally, retail sales for second quarter last year increased nearly 8%. Driven by the timing of product launches bought in stores and online, creating a more difficult comparison for the quarter.

Speaker Change: Now moving to 2nd quarter results, for the quarter, Todorovic Newsver 111.8 million dollars, up to 2.4% year over year. Net 3 pale sales were flat at 103.5 million dollars.

Speaker Change: A 28.2% decline in web demand was offset by growth and existing stores plus the addition of new locations.

Speaker Change: As we discussed on our Q1 call, last year Spectator Week called a shift in comparable week this year.

Speaker Change: First Quarter's impact was mostly reversed during the second quarter benefiting store sales.

Speaker Change: Additionally, retail sales for second quarter last year increased nearly 8%.

Speaker Change: Driven by the timing of product launchers bought in stores and online, creating a more difficult comparison for the quarter.

Voin Todorovic: Our store traffic, outpaced national traffic, though slightly down for the quarter, and was offset by increased store conversion. Traffic improved in July, and that trend has continued into the third quarter, most likely benefiting from the earlier investments in our brand campaign, the stuff you love, as well as new product launches. Web demand was impacted by a lighter products launch scheduled this past quarter, again successful product launches last year. Challenge is related to organic surge, also impacted web demand, but we have seen solid surge improvement starting in late Q2 and Q3. Looking ahead, third quarter, which includes Halloween, has a stronger product-loan schedule.

Speaker Change: Our store traffic, outpaced national traffic, though slightly down for the quarter and was offset by increased store conversion.

Speaker Change: Traffic improved in July and that trend has continued into the third quarter, most likely benefiting from the early investments in our brand campaign, the staff you love, as well as new product launches.

Speaker Change: WebDemand was impacted by a lighter products launch schedule this past quarter against successful product launches last year.

Speaker Change: Challenges are related to organic starch, also impacted web demand, but we have seen solid starch improvement starting in late Q2 and in Q3.

Speaker Change: Leading a head throughout the quarter, which includes Halloween, has a stronger product loan schedule. And as Sharon mentioned in her comments, web demand is up double digits, and our stores have also posted strong performance on a quarter today basis.

Voin Todorovic: And if Sharon mentioned in her comments, web demand is up double digits, and our stores have also posted strong performance on a quarter-to-day basis. Commercial revenue, which primarily represents wholesale sales to partner operators and international franchise revenue, was up 44.8% versus the prior year. We continue to expect strong growth for the segment on a full-year basis. Growth margin was 54.2%, an increase of 50 basis points compared to last year, mainly due to commercial margin expansion. The remainder of improvement was from retail growth, margin expansion driven by growth in retail merchandise margin, partially offset by higher depreciation expense related to last year's rollout of the new point of sale system.

Speaker Change: Commercial revenue, which primarily represents wholesale sales to partner operators and international franchise revenue were up 44.8% versus the Pirea.

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

Sharon: Gross margin was 54.2% and increase of 50 basis points compared to last year mainly due to commercial margin expansion.

Sharon: The remainder of improvement was from retail gross margin expansion, driven by growth in the retail merchandise margin, partially offset by higher depreciation expense, related to last year's rollout of the new point of sales system.

Voin Todorovic: SGN expenses were 49.2 million dollars or 44% of total revenues, compared to 44.2% last year. The 20 basis point improvement in SGNA rate was primarily driven by expense timing and disciplined cost management. On our previous call, we mentioned that for the first quarter, SGNA was negatively impacted by expense timing, and this partially reversed in Q2. For the full year, we continue to expect SGNA is a percent of total revenue to be at or below 20-23's level. Pre-tax income grew 10.2% to 11.5 million dollars, a second quarter record. Diluted earnings per share was 64 cents, an increase of 12.3%.

Sharon: SGN expenses were $49.2 million or $44 per cent of total revenues compared to $44.2 per cent last year. The 20 basis point improvement in SGN-A rate was primarily driven by expense timing and disciplined cost management.

Sharon: On our previous call, we mentioned that for the first quarter, SGNA was negatively impacted by expense timing and this partially reversed in Q2.

Sharon: For the full year, we continue to expect SGNA is a percent of Tolera Avenue to be at or below 2023s level.

Sharon: 3 tax income, grew 10.2% to 11.5 million dollars, a second quarter record.

Sharon: diluted earnings per share was 64 cents, an increase of 12.3%. This reflects our growth in pre-tax income in a reduction in the share count. Partly offset by higher tax rate compared to prior year.

Voin Todorovic: This reflects our growth in pre-tax income in a reduction in the share count, partially offset by a higher tax rate compared to the prior year. With respect to the balance sheet, at second quarter end, our cash balance was 25.2 million dollars, representing a 7.4 million dollar decline year over year. This was after returning 33 million dollars to shareholders over the past year and also reflects some cash flow timing due to the counter-ship. Inventory at quarter end was 67 million dollars, increasing 700,000 dollars or 1% compared to the same period last year, and it is in line with our expectations.

Operator: 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.

Sharon: With respect to the balance sheet, at 2nd quarter-end, our cash balance was $25.2 million, representing a $7.4 million decline year over year.

Operator: If anyone to require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Gary Schnierow: It is now my pleasure to introduce your host, Gary Schnierow, investor relations. Thank you, good morning everyone, and welcome to Build-A-Bear's second quarter 2024 Earnings Conference Call. With us today, our Build-A-Bear's CEO, Sharon Price-John, and CFO, Voin Todorovic. During this call, we'll refer to forward-looking statements that are subject to risk and uncertainties. Actual results could differ materially. Please refer to our forms 10K and 10Q, including the risk factor section. We undertake no obligations to update any forward-looking statement.

Sharon: This was after returning 33 million dollars to shareholders over the past year and also reflects some cash flow timing due to the calendar shift.

Sharon: Inventory at Quadran was $67 million, increasing $700,000 or 1% compared to the same period last year, and it is in line with our expectations.

Voin Todorovic: Turning to the outlook. Given our solid second quarter results and third quarter-to-date momentum, we are reiterating our annual 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 revenues to grow on a mid-single-digit basis. This growth is partially driven by the addition of at least 50 net new locations, with the majority coming through partner operating expansion, both internationally and the most.

Sharon: Thuroning to the output.

Sharon: Given our solid second quarter results, and third quarter today's momentum, we are reiterating our annual guidance.

Speaker Change: 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 50th or the week.

Gary Schnierow: During this call, we will present both GAAP and non-GAP financial measures. A reconciliation of non-GAP to GAAP measures is included in today's earnings release, which is distributed and available to the public who are investor relations website.

Speaker Change: We continue to expect Todorovic news to grow on a mid-singled digit basis. This growth is partially driven by the addition of at least 50 net new locations with the majority coming through partner operating expansion, both internationally and domestically.

Sharon Price-John: And now I'll turn the call over to Sharon. Thank you, Gary.

Voin Todorovic: basically. As we add more experienced locations and expect a more favorable fourth quarter comparison on a 13-week basis, we expect revenue acceleration in both a third and fourth quarter. Pretax income to grow in the mid-single digit range on a full-year basis. The outlook also reflects ongoing wage inflationary pressures, increase depreciation expense, and increase rate cost. 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.

Sharon Price-John: Good morning, and thanks for joining us for Build-A-Bear's second quarter fiscal 2024 Earnings Call. For the past several years, we have shared our strategy to evolve the company's business model with the goal of sustained profitable growth by leveraging the power and affinity of the Build-A-Bear brand. We have occasionally referred to this as approaching the business as a way to expand into new people, new places, and with new types of product offerings.

Speaker Change: As we add more experience locations and expect a more favorable for court a comparison on a 13 week basis, we expect to revenue acceleration involved a third and fourth court.

Speaker Change: Pretext income to grow in the mid-single digit range on the full year basis.

Speaker Change: The outlook also reflects ongoing wage in inflationary pressures, increase the appreciation expense and increase freight cost.

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 of their brand.

Sharon Price-John: With that in mind, over the past few years, we have worked to extend Build-A-Bear's consumer base beyond kids to take advantage of our growing multi-generational appeal. We have done this with primarily collectibles, trend products, licensing and gifting, resulting in an increase in our teen and adult business now representing approximately 40% of our total retail sales. We have continued to drive our consumers first engagement with Build-A-Bear at its experience locations by broadening our geographic reach and store types beyond our historical US-focused, mall-based traditional footprint.

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

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

Operator: Operator? Thank you.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tomorrow indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands up before a person's star keys. One moment please, while we pull for questions. Thank you.

Speaker Change: Thank you. We will now be conducting a question in the answer session.

Speaker Change: If you would like to ask a question, please press star one on your telephone keypad.

Speaker Change: Hey confirmation, Tom will indicate your line is in the question, cue.

Speaker Change: He may press star 2 if you would like to remove your question from the queue.

Speaker Change: Who would have spent using speaker equipment, it may be necessary to pick up your hands up before a person's jargeys. When moment please, while we pull for questions.

Sharon Price-John: We have become more global with more store types in a variety of shopping environments with new business models. This effort has led to an acceleration of store growth, and by the end of fiscal 2024 we expect to have opened nearly 90 net new locations over the past two years, all while continuing to maintain and integrate with a meaningful web business. And we are evolving product categories beyond the iconic make-your-own customizable cadre of characters with new introductions like the successful many beans collectibles which have already sold over one half million units since their launch earlier this year.

Eric Beder: Our first question comes from the line of Eric Beater with SCC Research.

Speaker Change: Thank you. Our first question comes from the line of Eric Bader with SCC Research. Please receive your question.

Eric Beder: Please receive it with your question. Good morning, congratulations on a solid Q2 and a strong start to Q3. Thank you.

Eric Bader: Short good morning, congratulations on a solid Q2 and a strong start to Q3.

Sharon Price-John: For many beans, great new product, a little bit lower price than the full size bear.

Speaker Change: Thanks for talking to me, thank you, so many bands, great new product.

Sharon Price-John: Are you seeing that being as more of an add-on or increment, or just a single purchase? How is that helping to change the overall mix of units and in pricing in terms of the stores?

Speaker Change: Little bit lower price than the full-size bear, when you see that being as more of an add-on or increment or just a single purchase, how is that helping to change the overall mix of, I guess, units and embracing in terms of the stores.

Sharon Price-John: These efforts have resulted in a more diversified business which when coupled with more efficient operations has envisioned delivered more products in more places to more people at a consistently higher level of profitability. With strong cash flow and no borrowing the company has been able to both invest in the future and return capital to shareholders. In fact, over the past three plus years, Build-A-Bear has enjoyed record-breaking results, including an unprecedented period of profitability compared to any other time in its quarter century history.

Sharon Price-John: Thanks, Eric. Appreciate that.

Sharon Price-John: The many beans have been a labor of love for us. We love the fact that we're not only creating unique many beans, but a lot of the ones that we create from a design perspective are what we call takedowns of some of our most popular products. One of the reasons we do that, it might be a little counterintuitive, but a lot of people want to buy the mini bean as a product that they've already purchased the larger make your own item. That dynamic often drives the add-on purchase for many beans. One of the key reasons, so at NetNet, we're seeing, as the sales would reflect in total, we're seeing an increase, although there is a combination of people coming in.

Speaker Change: Thanks, Eric, appreciate that. We, the many things have been, um,

Speaker Change: A labor of love for us. We love the fact that we're not only are we creating unique many things, but a lot of the ones that we create from design perspective are what we call take-downs of some of our most popular products.

Speaker Change: One of the reasons we do that, it might be a little counterintuitive, but a lot of people want to buy the many being as a product as they've already purchased the larger make-your-own item.

Speaker Change: So that dynamic often drives the add-on purchase for many things.

Sharon Price-John: Aligned with this trend, I'd like to share some highlights of our 2024 second quarter. These results represent the best second quarter in the company's history. Revenues of nearly $112 million, an increase of nearly 2.5%, and pre-text income of more than $11 million, representing growth of over 10%. These results coupled with strong third-quarter-to-date trends and robust back-half plans support the reiteration of our full year guidance. Of note, even when compared to a strong second quarter in 2023 and in the wake of negative reported national retail traffic trends, our unique and memorable retail experience, which so often serves as the first step in the important lifetime consumer journey, remained solid.

Speaker Change: and the one of the key reasons, so it net net, we're seeing as the sales would reflect in total, we're seeing an increase, although there is a combination of people coming in, we're just a minibane or four or five minibanes sometimes. And that's that lower price point also helps us drive our conversion.

Sharon Price-John: We're just a mini bean or four or five mini beans sometimes. That lower price point also helps us drive our conversion, which point mentioned if somebody's coming in and that's an easy pickup purchase for them. But there is this other dynamic that's also an add-on purchase. And so you're seeing, on total, an increase overall of our sales and a slight increase in conversion, as we talked about.

Voin: which Voin mentioned, if somebody's coming in and that's an easy pick up purchase for them. But there is this other dynamic that's also an add on purchase and so you're seeing on.

Voin: Total, an increase overall of ourselves and a fight increase in conversion as we talked about.

Sharon Price-John: One of the reasons, though strategically, that we launched the mini beans was not just to put them in our stores, but as a proof point of the power of the brand to stretch beyond the make your own concept with plush. And we wanted to prove that inside of our own retail location. That opens up a wholesale opportunity for us because there's not that make-your-own experience process necessary for you to enjoy these products. And we are in the process of working with other retailers, not only here in the United States, but across the globe, to sell many beans as just their own plush item.

Speaker Change: One of the reasons, though strategically, that we launched the many beans, was not just to put them in our stores, but as a proof point of the power of the brand to stretch beyond the make your own concept with plush.

Sharon Price-John: Conversely, given some of the ongoing systems enhancements and product launch timing, BuildA-Bear.com's overall web-demand results were significantly down for the quarter. Fortunately, the challenges driven by shifts of popular online product launches versus 2023 are expected to be mitigated over the course of the total fiscal year, as we have already started to see in early third quarter. On balance, second quarter delivered strong earnings per share with a much higher level of profitability when compared to any pre-COVID-second quarter over the past 15 years.

Speaker Change: and we wanted to prove that inside of our own retail location. That opens up a wholesale opportunity for us.

Speaker Change: Because there's not that make your own experience process, necessary for you to enjoy these products. And we are in the process of working with other retailers, not only in the United States, but across the globe, to sell many beans as just their own plus item.

Eric Beder: That's a great point.

Eric Beder: Quickly on the international and the life of the opportunity, I would assume that as this is a success in one country, you're going to see people come to you for other locations, other territories. You know, I should be thinking about where we are in the potential growth for this group and where should we be thinking about it going longer term.

Speaker Change: from the Supreme Court. Quickly on the International and the Life of the Opportunity, I want to assume that.

Sharon Price-John: We also remain committed to returning capital to shareholders via a combination of share repurchases and quarterly dividends, totaling over $12 million in the second quarter and $24 million through the first half of 2024. Again, overall, we believe these sustained results are largely associated with the continued focus on the execution of our multi-year three-pronged strategy designed to deliver long-term profitable growth grounded in our most valuable asset, the BuildA-Bear brand.

Speaker Change: As this is a success in one country, you're going to see people come to you for other locations, other territories. You know, gosh, we'd be thinking about where we are on the potential growth for this group. And where should we thinking about it going longer term? Thank you.

Sharon Price-John: Thank you. So thanks for the question, Eric. International opportunity as it relates to this partner or operate location is really one of the bright spots for the organization. We are very pleased with the success that we have been seeing so far in some of the countries that we are operating and expanding, and definitely positive feedback from our partners. As you may recall, over the last couple of years after COVID, it was really challenging for anybody to travel and to go and expand some of those relationships. You know, we have many inbound requests about some of these opportunities, and we are working on some of those, and we continue to evaluate, and we want to make sure that we explore all the opportunities and find the right partners that can scale in respective markets that they are operating.

Speaker Change: So, thanks for the questionnaire, international opportunity as it relates to this partner or predlocation is really one of the bright spots for the organization. We are very pleased with success that we have been seeing so far in some of the countries.

Sharon Price-John: Our plans to systematically monetize the awareness and power of the brand include. One, based on the long-held belief of our founder that a teddy bear hug is understood in every language, our first strategic pillar is dedicated to expansion through the experience location. This well-researched global retail scaling effort represents not only the evolution of store types, but also of financial model, including a corporately operated model, partner operated model, and franchising. While the company has operated in select international markets for decades, a recent post-COVID effort has resulted in a multi-country rollout, mostly through our partner operated business model, in both continental Europe and South America.

Speaker Change: that we are operating and expanding and definitely positive feedback from our partners.

Speaker Change: As you may recall over the last couple of years after COVID it was really challenging for anybody to travel and to go and expand some of those relationships.

Speaker Change: You know we have

Speaker Change: Many inbound requests about some of these opportunities and we are working on some of those and be continue to evaluate and we want to make sure.

Speaker Change: that we explore all the opportunities and find the right partners that can scale in respective markets of the Arab trading, but we believe this is going to be an opportunity for many years to come. I, when you think about where could this go, if we've mentioned this in the past, Eric.

Sharon Price-John: But we believe this is going to be an opportunity for many years to come.

Sharon Price-John: When you think about where could this go, if we've mentioned this in the past, Eric, just from a macro perspective, and this would be inclusive of the operated source that we have in the UK and Canada and Ireland. But most of the time, US-based companies look at store opportunities or even business opportunities in general as the scale in the United States usually is about half or 40% of what's possible on a global basis. So we've mentioned before that we feel that it's not unreasonable to believe that we could have as many stores outside of the United States as we have inside the United States.

Speaker Change: Just enjoy.

Eric Bader: from a macro perspective and this would be inclusive of the operated source that we have in the UK and Canada and Ireland.

Sharon Price-John: In Europe, beyond our long-standing corporate operation in the UK, we opened new locations across Italy and France via our capital-like partner operated business model. In Italy, we partnered with the well-known toy retail and entertainment company, Gioci Prisiozi, with plans to introduce a combination of stand-alone workshops and shop-in-shop inside their own toy stores, as well as families' toy stores, through a shared relationship with the multi-billion dollar global conglomerate reliance industry. We also opened our first partner-operated location in France at the iconic Paris department door galleries Lafayette in Chancelise, in conjunction with longtime partner FAO Schwartz, with whom we operate the recently expanded and very successful Rockefeller Plaza shop and New York City.

Eric Bader: Most of the time US-based companies look at store opportunities or even business opportunities.

Eric Bader: in general as...

Eric Bader: The scale in the United States usually is about half or 40 percent of what possible on a global basis. So we've mentioned before that we feel that it's not unreasonable to believe that we could have as many stores outside of the United States as we have inside the United States. But just note when you're modeling that right now that's leaning toward more partner operated and franchise operated, which is a little different way to calculate it from a retail revenue perspective.

Sharon Price-John: But just note when you're modeling that right now that's leaning toward more partner operated and franchise operated, which is a little different way to calculate it from a retail revenue perspective. Okay.

Eric Beder: Thank you. Enjoy the early Halloween; that stores look great, and good luck for the rest of the year. Thanks, Eric.

Speaker Change: Thank you, enjoy the early Halloween that stores the great and good luck for the rest of the year.

Eric Bader: Thanks, Eric.

Speaker Change: Our next question comes from a line of Michael Baker with DA Davidson. Please be seated with your questions.

Sharon Price-John: As a part of our continued U.S, expansion and in conjunction with our successful tourist location strategy, we opened two Las Vegas shop and shops with our new partner WH Smith, located inside their Welcome to Las Vegas gift shops at the Forum and Link promenade. We also opened in the historic Riggly Building on Chicago's famed magnificent mile. This store features a specially procured line of licensed branded and themed products to appeal to the windy city guests, just as we do with many of our other tourist destination, which generally serves as a meaningful contributor to our comparative overperformance in this type of location on almost every key metric.

Speaker Change: i

Michael Baker: Okay, thanks. The backup guidance suggests, you know, much better trends than the first half, I think even better than the second quarter, which...

Michael Baker: But I guess you know what sort of risks, or if you can flush out the back half guidance, your holiday expectations. How do you think about, you know, besides you guys, we're seeing a lot of consumer, you know, negative consumer data points. People are concerned about the election. How does all that play into your outlook that, again, the second half seems like it's going to be just a lot better than the first half?

Speaker Change: Thanks for watching, see ya next time!

Speaker Change: But I guess, you know, what sort of risks, or if you can flush out the back-app guidance, you're holiday expectations.

Speaker Change: How you think about...

Speaker Change: You know besides you guys we're seeing a lot of consumer, you know negative consumer data points, people concerned about the election, how does all that?

Speaker Change: Playing to your outlook that, again, the second half seems like it's going to be just a lot better than the first half.

Sharon Price-John: So I'll take that. Thanks for the question. You know, our guidance really hasn't changed from the beginning of the year. We keep reiterating. We have not been this being an election year. There is going to be a lot of ups and downs, as well as, you know, we have some sharpness in our comparison with the prior year. We always said that it's going to be back half weighted. And when you think about, we shared about store count, we open about 23 stores so far on the year today basis, 17, we added in the second quarter, 16 first quarter. You know, we expect some of that stuff to accelerate to get to at least net 50 by the end of the year.

Speaker Change: So I'll take that, my thanks for the question, you know, our guidance really hasn't changed from the beginning of the year we keep reiterating.

Speaker Change: We have known this being an election year that is going to be a lot of ups and downs, as well as you know, we have some chaplainess in our comparison with the prior year. We always said that it's going to be back halfway to it. And when you think about...

Speaker Change: We shared about store count. We opened about 23 stores so far on a year-to-date basis.

Speaker Change: 17, we added in a second quarter, 16 first quarter, you know, we expect some of that stuff to accelerate to get to at least net 50 by the end of the year.

Sharon Price-John: So we believe that's a big piece of some of that growth. In addition to that, we are commercial business has been very strong and we expect to see the expansion in that particular segment. Also from the product launch perspective, we talked about some of the things and some of the strong friends that we are seeing in Q3. Again, that's all contemplatively in our full year guidance. But when some of these launches and timing of product arrival happens, Q2 versus Q3, you know, there is some noise. But speaking from the con perspective and some of the comparisons with last year, second quarter was our toughest comp quarter because you know, we saw some strong results last year.

Speaker Change: So we believe that's a big piece.

Speaker Change: of some of that growth. In addition to that, we are commercial business has been very strong and we expect to see the expansion in that particular segment.

Speaker Change: Also, from the product launch perspective, we talked about some of the things in some of the strong friends that we are seeing in Q3. Again, that's all contemplative, it's in our full year guidance, but in some of these launches and timing of product arrivals.

Speaker Change: Happens to you two versus Q3, you know there is some noise, but

Speaker Change: Speaking from the home perspective, and some of the comparisons with last year.

Sharon Price-John: While we have many of the tools in place to drive greater integration between buildabear.com and buildabear workshop, especially when it comes to efforts like buy-on-line ship from store, we are still in the process of fully integrating our guest first party data and shopping history with synergistic marketing and product offerings across the enterprise. The omnichannel model, when fully executed, has been proven to unleash combined power of in-store e-commerce, e-mail, social media, loyalty, and traditional communications tactics.

Speaker Change: Second quarter was our toughest compounder because you know, we saw some strong results last year and as we went last year to Q3 and to Q4 our business was a little bit softer so we believe we have some more opportunities later on in the year and as well we are excited about how we have been successful, we have seen so far and the amount of investment that we made in that product and so that gives us the confidence as we think about the full year guidance.

Sharon Price-John: And as we went last year into Q3 and to Q4, our business was a little bit softer, so we believe we have some more opportunities later on in the year. And as well, we are excited about the how we success that we have seen so far and the amount of investment that we made in that product. And so that gives us the confidence as we think about the full year guidance.

Sharon Price-John: In addition to that, there is still some uncertainty. That's why we have the high and low-end range of the guidance. We feel good about things that are within our control and what we can do. But you know, the external outside factors that could impact us, you know, are clearly outside of our control. And thus, you know, some of that impact for the range the way we have. Yeah, it makes sense. A lot of good things there.

Speaker Change: In addition to that there is still some uncertainty that's why we have the high and low end range of the guidance.

Sharon Price-John: Through a more personalized unified vision, ultimately driving repeat purchase. When you consider that each year up to 50 million people enter a buildabear workshop and we have an estimated 50 million annual visits to our website, combined with an 85% capture rate in stores and over 20 million first party data records. You can understand why we believe this is such an important part of our strategic efforts. However, it is not uncommon for the learning curve associated with implementing and optimizing omnichannel integration tools to be somewhat disruptive.

Speaker Change: We feel good about things that are between our control and what we can do, but you know the external outside factors that could impact us, you know, are clearly outside of our control and thus, you know, some of that impact for the range the way we have it.

Michael Baker: Another, you know, I think good news situation, but maybe a little more color is just to clarify. So web demand was down 28% in the second quarter, and you're saying it's up in the third quarter. Did you say up double digits in the third quarter?

Speaker Change: Yeah, make sense. A lot of good things there. Another, you know, I think good news situation, but maybe a little more color is

Speaker Change: to just to clarify. So web demand was down 28% in the second quarter and you're saying it's up in the third quarter.

Voin Todorovic: So I just want to make sure we're, you know, those metrics are sort of apples to apples. You're going to use one from down 28% to now up double digits, or am I hearing that wrong? So we were down on a full quarter, down 28.2%. We are up strong double digits so far on year on the quarter date, Q3.

Speaker Change: Did you say up double digits in the third quarter so I just want to make sure that those metrics are sort of apples. You're going to use swan from down to 28% to now up double digits or am I?

Sharon Price-John: Therefore, we have been working with partners, such as Salesforce as well as other consultants, to identify, prioritize, and implement opportunities. As an example, on our last call, we shared that we had a significant climb in our web traffic which was deemed to be largely associated with a decrease in organic search linked to competitive conquesting. Since then, our web traffic has increased and we have enjoyed improved organic search results. We believe this is due to a combination of changes to our search terms, improvements to our SEO strategy, the viral popularity of key D-product launches, and the positive trickle-down impact of the upper funnel investment we made in the stuff you love campaign earlier this year.

Speaker Change: So beaver down on a full quarter down 28.2% we are up strong double digits so far on year to on a quarter date Q3.

Voin Todorovic: Okay. And so then I guess the fall out there is that just some of the, I presume you should see. Is there anything in the comparison that's influencing that? Is that improvement? Because of, you know, the better search, all the initiatives that you talked about and the benefit you're getting from bringing in sales, forces, all, and so on, etc. It's the combination of things, as we noted on the in the prepared remarks. It is some of the improvements in our SEO strategy, some shifts in search engine. That is a search engine. Excuse me. SEO strategy, some other of our efforts on websites, integration.

Speaker Change: Okay, and so then I guess the fall of theirs.

Speaker Change: is that just some, I presume we should see, is there anything in the comparison that's influencing that? It's just that improvement because of, you know, the better search, all the initiatives that you talked about.

Speaker Change: the benefit you're getting from bringing in sales for us and so on, etc.

Speaker Change: It's the combination of things that we noted on the prepared remarks. It is some of the improvements in our SEO strategy, some shifts in search engine, or that is search engines, heave me. SEO strategy, some other of our efforts on.

Voin Todorovic: But most importantly, I think, and we know this, we've had some product timing shifts. And then we mentioned that even in the last call, and those product timing shifts are impactful for the web particularly. So for example, when we launched this Halloween product collection, the first Hello Kitty phase that not hell, the first pumpkin kitty phases that we mentioned, which was a vault product, they were online only and that really did drive the business significantly. And we had not launched any of the Halloween product, as an example, until much later in the third quarter last year.

Speaker Change: Web site integration, but most importantly, I think, and we know this, we've had some product timing shifts.

Sharon Price-John: Three, our last pillar is our continued fiscal focus designed to enable us to make strategic investments to leverage the brand to drive profitable growth while returning value to our shareholders. With this in mind, given the company's meaningful improvement in cash flow over the past few years, we have been able to make a large number of long-term strategic decisions across the company. Touching products, brand, partnerships, content, talent and infrastructure, all while returning over $116 million to shareholders through dividends and stock repurchases.

Speaker Change: and then we mentioned that even in the last call and those product timing shifts are impactful for the web, particularly.

Speaker Change: For example, when we launched this Halloween product collection, the first Hello Kitty phase that not held up the first Pumpkin Kitty phases that we mentioned, which was a bulk product, they were online only and that really did drive the business significantly. And we had not launched.

Speaker Change: Any of the Halloween product as an example until much later in the third quarter last year.

Sharon Price-John: As we look to the second half of the year, I am pleased to share that with the backdrop of the ongoing implementation of the above strategy, our third quarter to date results have been strong. And driven largely by our holiday-wing product line, we have posted solid increases in-store and double-digit increases online. Interestingly, Halloween seasonal product in general has been growing in both interest and revenue in recent years according to the National Retail Federation, and Builda Bear has seen the same phenomenon.

Michael Baker: Okay, that makes sense.

Michael Baker: Okay.

Gregory Gibas: Thank you very much. Our next question comes from a line of Greg Give us with Northland Securities. Please proceed with your question. Hey, good morning, Sharon and Boy, thanks for taking the question. Congrats on the strong results. You know, want to follow up on just new store growth and your expectations there, you know, solid step up and in Q2 17 versus 6 in Q1, you know, reiterating your expectations for the full year, just want to get a sense of maybe the cadence of new store growth and Q3 versus Q4. And also, if you maybe discuss, I guess the geographic breakdown of the new store growth that you had in the quarter.

Speaker Change: Okay, that makes sense. Okay, thank you very much.

Speaker Change: Our next question comes from line of Greg Givas with Northland Securities. Please receive with your question.

Speaker Change: and Voin. Thanks for your questions, congrats on the strong results.

Greg Givas: You know, one of the holopon just moved toward growth and your expectations there, you know, a solid step up in Q2, 17 versus 6 and Q1, you know, reiterating your expectations for the full year. Just wanted to get a sense of maybe the cadence of moved toward growth and Q3 versus Q4, and also it's a good maybe, just because I guess the geographic breakdown of the moved toward growth that you had in the corridor.

Sharon Price-John: Having sold out of key items well before October 31st in 2023, the company made some strategic choices to focus on this year's Halloween season with more offerings, deeper inventory and an earlier launch. Leading with a new glow-in-the-dark assortment, a Sanria collection of exclusive Halloween designs, and the reintroduction of a popular replica of the classic 2008 pumpkin kitty from our vault of favorite furry friends, we have planned on kicking off the season in mid-August.

Gregory Gibas: So I'll take that. So thanks for the question again. Definitely, we are pleased about our opportunities from the store count growth perspective. So some of those things, especially internationally partner operating locations, there are some additional logistics things to work through, and especially with some of the challenges around logistics routes around the world that are impacting and delaying, in some cases, some of these openings or the product and equipment flow. But again, the goal would be to open all that stuff to be ready for the holiday season as much as possible. When we think about some of the growth, we said a lot of those are going to be part of operated between both domestic and international.

Speaker Change: So I'll take that, so thanks for the question again, definitely we are pleased about our opportunities.

Speaker Change: from the store counter road perspective.

Speaker Change: We would of course prefer to open those as quickly as possible, you know, especially if our own stores or even for our partners to maximize the opportunity for this year.

Speaker Change: The goal is definitely to take advantage of the fourth quarter and open a misroliest pass-about.

Speaker Change: Some of those things, especially internationally, partner-operated locations, there are some additional logistics.

Speaker Change: Thanks to work through and especially with some of the challenges around logistics, roots, around the world that are impacting and delaying in some cases some of these.

Speaker Change: Openings or the product and equipment flow. But again, the goal would be to open all that stuff to be ready for the holidays season as much as possible.

Speaker Change: When we think about some of the growth, we said a lot of those are going to be part of the rapid between both domestic and international, and you know there is some part of some of the own and operated locations that we are expanding in some of the key markets and Sharon Tachson, few of the stores in some of the key tourist areas that we are opening that we are excited about.

Sharon Price-John: Our remaining pipeline for the third quarter includes additional exciting Halloween introductions and the launch of a broadened NFL product offering, the celebration of National Teddy Bear Day on September 9th with in-store events and special promotion, an enhanced relationship with varsity spirit, the worldwide leading brand for competitive cheerleading, which includes pop-up shops at cheer camp. And reflecting on our exciting press release earlier today, the introduction of an exclusive 50th anniversary Hello Kitty make your own plush as well as our November plans to open a first of its kind, build a bear and Hello Kitty and friends workshop with our partner, Sanrio in the premier Westfield Century City Shopping Center in Los Angeles.

Voin Todorovic: And you know, there is some part some of the on and operated locations that we are expanding in some of the key markets and share and touched on few of the stores in some of the key tourist areas that we are opening that we are excited about.

Voin Todorovic: Great, that's helpful. And I know you don't like to necessarily point to kind of same-store sales growth, but wanted to get a sense there, just given you know there were a good number of openings this quarter and you know with webbing down I know it makes it a little challenging, but just wanted to get a sense of maybe same-store sales kind of on a brick-and-mortar front. So we don't talk about the same-store sales, and you know, but I'll try to provide some color about, you know, as we mentioned earlier in the year, because of the 53rd week shift, when you are making that true comparative week over week, you know, our gap 13 weeks this year versus 13 weeks last year do our benefiting from the same thing that we were having some headwind in the first quarter of the year.

Speaker Change: Greedet helpful and um...

Speaker Change: I know you don't like to necessarily point to kind of same store sales growth, but one of the get a sense there, just given a good number of openings this quarter, and with webbing down I know it makes it a little challenging, but just one of the get a sense of maybe same store sales kind of on a break and more from.

Speaker Change: So, we don't talk about the same store stales and you know, but I'll try to provide some color about

Sharon Price-John: Overall, we delivered solid second quarter results, although we saw some challenges with web demand. As we continue to execute on the strategic initiatives, inclusive of the continued omnichannel integration, we expect to see positive momentum as the year progresses.

Speaker Change: You know, as we mentioned.

Speaker Change: Earlier in a year because the 50-turod week shift, when you are making that true comparative or weak over week, you know, our gap 13 weeks this year versus 13 week last year, do our benefiting from the same thing that we were having some headwind in the first quarter of the year.

Sharon Price-John: In closing, while we are very proud of this organization as a pioneer in the creation of experiential retail, it is always nice to receive external validation. As we recently did with Newsweek's third annual ranking of America's Best Retailers, we not only had one of the higher rankings in the list, but were ranked as the number one toy retailer. With that, I would like to thank all of the Build-A-Bear Associates, guests, and partners for continuing to deliver record results as we work toward our mission of adding a little more heart to life.

Voin Todorovic: So if you are looking at the existing store sales plus you know this week shift you know like an existing source you know we have seen an improvement. We also have seen some growth from the new stores that's offsetting this decline in web demand being flat for the quarter. And also another thing to point out this 28% in web demand that we are seeing compared to last year, 25 to 30% of our business that we've seen from the web demand perspective gets fulfilled through our store location. And we see and we report those sales based on the location where the stores are, where the shipments are fulfilled from, in this case that from our stores.

Speaker Change: So, if you are looking at the existing store stales,

Speaker Change: Plush, you know, this weak ship, you know, like an existing source, you know, we have seen an improvement. We also have seen some growth from the new stores that are offsetting this decline in the web demand, being flat for the quarter. And also another thing to point out, this 28%.

Speaker Change: in Web Demand that we are seeing compared to last year.

Speaker Change: 25 to 30% of our business that we've seen from the web demand perspective gets fulfilled through our store locations and we see and we report those sales based on that.

Voin Todorovic: Moin? Thank you, Sharon, and good morning, everyone. It's good to speak with you again today to share our second quarter 2020-24 results.

Speaker Change: Location where the shifts are fulfilled from, in this case that's from our stores. So, if the web dimension theoretically was flat to last year and we kept the same things, you know, our stores would have seen even stronger results.

Voin Todorovic: So if the web demand theoretically was flat to last year and we kept the same things, you know, our stores would have seen even stronger results.

Voin Todorovic: Before I touch on the financials from the past quarter, I want to recap a few highlights. This was our best ever second quarter, as we continue to deliver on our strategic initiatives. Even though we faced headwinds working through transitory web challenges, our strong results reflect the ongoing diversification of the business. Also as the result of consistent performance and strong cash flow generation, we continue to return capital to shareholders. We paid our second quarter with dividend, and during the quarter spent $9.1 million to repair shares. In addition, since the end of the second quarter, we have spent $1.7 million. On a year-to-date basis, we have repurchased over 5% of our outstanding share count.

Gregory Gibas: Great, that's helpful. Thank you.

Speaker Change: Great, that's helpful, thank you.

Steven Silver: Our next question comes to a line of Steve Silver with Argus Research. Please, please proceed with your question. Thanks, operator, and congratulations on the Q2 milestone. So a lot of the questions have already been answered, but one I have is the discussion around certain items from the Halloween collection being depleted.

Speaker Change: Our next question comes from line of Steve Silver with Argus Research, please see with your question.

Steve Silver: Thanks operator and congratulations on the Q2 milestone.

Steve Silver: John.

Steve Silver: So, a lot of the questions have already been answered, but one I have is the...

Steve Silver: The discussion around certain items from the Halloween collection being depleted.

Steven Silver: I know you guys have spoken on previous calls about the investments in the supply chain and managing inventory levels, but can you just talk a little broadly about how the supply chain is set up to replenish items quickly, I guess given the fact that the company is so heavily involved with seasonal and holiday items? I just can we talk a little bit about how the company just is able to replenish so quickly in the supply chain? Thanks. On some of the seasonal items, it's obviously more difficult because the more truncated the time period is, the harder it is to push something through the supply chain process. But we work very hard with to try to be as predictive as possible based on our history, and we've also learned through the years whether that's through not just seasonal items, but also sometimes items associated with hot licenses that might be event-driven like a film, to manage the inventory. And oftentimes, as I mentioned for Halloween last year, we will sell out before the date.

Speaker Change: I know you guys have spoken on previous calls about the investments in the supply chain and managing inventory levels but can you talk a little broadly about...

Speaker Change: How the supply chain is set up to replenish items.

Speaker Change: Quickly, I guess, given the fact that the company is so heavily involved with the seasonal and holiday items. I just can talk a little bit about how the company is able to replenish so quickly in the supply chain.

Speaker Change: On some of these seasonal items it's obviously more difficult because the more truncated the time period is the harder it is to push something to the supply chain process.

Speaker Change: We worked very hard to try to be as predictive as possible based on our history. And we have also learned through the years whether that's through not just these in the light.

Voin Todorovic: Additionally, retail sales for second quarter last year increased nearly 8%. Driven by the timing of product launches bought in stores and online, creating a more difficult comparison for the quarter. Our store traffic, outpaced national traffic, though slightly down for the quarter, and was offset by increased store conversion. Traffic improved in July, and that trend has continued into the third quarter, most likely benefiting from the earlier investments in our brand campaign, the stuff you love, as well as new product launches.

Speaker Change: but also sometimes items associated with hot licenses that might be event driven like a film to manage the inventory and oftentimes, as I mentioned.

Sharon Price-John: Now in this particular case we learned as we tried to do under most circumstances that there's a big shift in Halloween and we did the research to support that shift that there's much more interest in some consumers across the board on Halloween. So, as we mentioned in remarks, we increased our inventory, our breadth of product, and in this particular case with the pumpkin kitty launch we actually have a flow coming in so it's hitting web first and then it hits the stores. So, we still have a couple of bites at this for the flow of Hello Kitty we didn't have get a sense and if we could catch some more of it and increase the the number of units that we ordered for the last flow we were able to do that. So, there's a lot of different levers that we try to pull to optimize without getting ourselves way over our skis when we don't have specific knowledge. In this particular case we did have some good knowledge because we had had pumpkin kitty in the past. The supply chain process is a holy is an entirely different kind of challenge for us that has, you know, issues kind of across the board from sourcing to shipping. But the other thing to think about that I think it's really important is although we do have seasonal and licensed products still the majority of our business is consistent ongoing evergreen items that our core business is made up of classic teddy bears, birthday treats bears, palette bunnies. We still do the majority of business there and we're able to manage our supply chain and basically, and I'm careful in making statements like this always have something available for the consumer whether online or in store that we hope they will like. It might not always be the licensed product or the exact right seasonal product but because most of our business is evergreen it does allow us to sometimes order long, order short, stay deep, stay in inventory in a way that it might be difficult for some others because again there's no it doesn't matter from a season size sizes or age there's no aged inventory for some of these core classic products teddy bear always always appreciate Great.

Speaker Change: for Halloween last year we will sell out before the date. Now, in this particular case, we learned as we try to do under most circumstances that there's a big shift in Halloween and we did the research to support that that shift.

Speaker Change: that there's much more interest in some consumers across the board on Halloween.

Voin Todorovic: Web demand was impacted by a lighter products launch scheduled this past quarter, again successful product launches last year. Challenge is related to organic surge, also impacted web demand, but we have seen solid surge improvement starting in late Q2 and Q3. Looking ahead, third quarter, which includes Halloween, has a stronger product-loan schedule. And if Sharon mentioned in her comments, web demand is up double digits and our stores have also posted strong performance on a quarter-to-day basis.

Speaker Change: As we mentioned in the remarks, we increased our inventory, our breath of product, and in this particular case with the pumpkin kitty launch, we actually have a flow coming in.

Speaker Change: So, it's hitting web first and then it hits the stores, so we still have a couple of bites at this for the flow of Hello Kitty. We didn't have a pumpkin kitty. We didn't have it all come in at once. We wanted to get a sense and if we could catch some more of it and...

Voin Todorovic: Commercial revenue, which primarily represents wholesale sales to partner operators and international franchise revenue, were up 44.8% versus the prior year. We continue to expect strong growth for the segment on a full-year basis. Growth margin was 54.2%, an increase of 50 basis points compared to last year, mainly due to commercial margin expansion. The remainder of improvement was from retail growth margin expansion, driven by growth in retail merchandise margin, partially offset by higher depreciation expense, related to last year's rollout of the new point of sale system.

Speaker Change: Increased the number of units that we ordered for the last flow we were able to do that.

Speaker Change: So there's a lot of different levers that we try to pull.

Speaker Change: to optimize without getting ourselves way over our skis when we don't have specific knowledge. In this particular case, we did have some good knowledge because we had had pumpkin kitty in the past.

Speaker Change: The supply chain process is entirely different, kind of challenge for us that has, you know, issues kind of across the board, with from sourcing to shipping. But the other thing to think about that I think it's really important is although we do have seasonal and licensed products.

Voin Todorovic: SGN expenses were 49.2 million dollars or 44% of total revenues, compared to 44.2% last year. The 20 basis point improvement in SGNA rate was primarily driven by expense timing and disciplined cost management. On our previous call, we mentioned that for the first quarter, SGNA was negatively impacted by expense timing and this partially reversed in Q2. For the full year, we continue to expect SGNA is a percent of total revenue to be at or below 20-23's level.

Speaker Change: Still the majority of our business.

Speaker Change: is consistent.

Speaker Change: I'm going evergreen items.

Speaker Change: That our core business is made up of classic teddy bears, verse-day treat bears, Paulette Bunnies, we still do the majority business there and we're able.

Speaker Change: to manage our supply chain and...

Speaker Change: Basically, and I'm careful on making statements like this, always have something available for the consumer, whether online or in store that we hope they will like.

Speaker Change: It might not always be the licensed product or the exact right seasonal product that the cause most of our business is evergreen.

Voin Todorovic: Pre-tax income grew 10.2% to 11.5 million dollars, a second quarter record. Diluted earnings per share was 64 cents, an increase of 12.3%. This reflects our growth in pre-tax income in a reduction in the share count, partially offset by higher tax rate compared to prior year. With respect to the balance sheet, at second quarter end, our cash balance was 25.2 million dollars, representing a 7.4 million dollar decline year over year. This was after returning 33 million dollars to shareholders over the past year and also reflects some cash flow timing due to the counter-ship. Inventory at quarter end was 67 million dollars, increasing 700,000 dollars or 1% compared to the same period last year and it is in line with our expectations.

Speaker Change: It does allow us to sometimes order long, order short, stay deep, stay in inventory in a way that it might be difficult for some others because again, there's no, it doesn't matter from a season to size.

Speaker Change: Sizes, there's no age inventory for some of these core-classic products. Teddy Bear always appreciated.

Steven Silver: Thanks for the color. Congratulations again.

Speaker Change: Great, thanks for the color, congratulations again.

Doug Lane: As a reminder, if you would like to ask a question, press star one on your telephone keypad. Our next question comes from a line of Doug Lane with Water Tower Research. Please receive your question. Yes, thank you. Good morning, everybody. I was just curious because of really business and good here and financially you're very strong.

Speaker Change: As a reminder, if you would like to ask a question, press star one on your telephone keypad.

Speaker Change: Our next question comes from a line of Doug Lane with Water Tower Research. Please receive a clear question.

Doug Lane: Yes, thank you. Good morning everybody.

Doug Lane: I'm just curious because real business is good here and financially you're very strong and I'm just wondering if you're an opportunity to accelerate three investing in your business, either through more capital expenditures or perhaps acquisitions, just what are your thoughts on that front?

Voin Todorovic: Turning to the outlook. Given our solid second quarter results and third quarter to date momentum, we are reiterating our annual 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 revenues to grow on a mid-single-digit basis. This growth is partially driven by the addition of at least 50 net new locations, with the majority coming through partner operating expansion, both internationally and the most, basically.

Doug Lane: And I'm just wondering, is there an opportunity to accelerate three investments in your business, either through more capital expenditures or perhaps acquisitions? What are your thoughts on that front? So thank you for the question. Yes, we are very pleased with things that you are sharing, that our balance is healthy, that our profitability has been solid, and that we continue to find ways to optimize the business and support our growth. When you think about there are opportunities, you know, like we have regular discussions with our board and look at ways between investing in the business that's always our number one opportunity, returning money to shareholders, and looking at other opportunities to grow the business.

Speaker Change: So, thank you for the question. Yes, we are very pleased with things that you are sharing that are.

Speaker Change: Bounce his health data and our profitability has been solid and has been continued to find ways to optimize.

Speaker Change: the Business and Support Our Grow. When you think about their our opportunities, you know, like we have regular discussions with our board and look at ways between investing in the business that always are number one opportunity, returning money to shareholders and looking at other opportunities to grow the business.

Voin Todorovic: As we add more experienced locations and expect a more favorable fourth quarter comparison on a 13 week basis, we expect revenue acceleration in both a third and fourth quarter. Pretax income to grow in the mid-single digit range on a full year basis. The outlook also reflects ongoing wage inflationary pressures, increase depreciation expense and increase rate cost.

Sharon Price-John: One of these things, even though we are expanding significantly our presence globally, we are doing it through this asset-like model where we are opening stores through our partner-operated locations and very asset-like. So we are in more places without spending a lot of capital. In addition to that, we are looking at opening stores and sharing covers some of those stores even in domestic markets and in UK. We shared some stores that we opened last year in these storey locations. So we are definitely looking at ways to open more locations, being more places. We have; we are not saturated from the store count perspective.

Speaker Change: One of these things, even though we are expanding significantly our presence globally, we are doing it through this asset-like model where we are...

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.

Speaker Change: Opening stores to our partner operated locations.

Speaker Change: and very asset light, so we are in more places without spending a lot of capital. In addition to that, we are looking and opening stores and Sharon covered some of those stores, even in domestic markets in UK, we shared some stores at the open last year in these tourist locations.

Operator: This concludes our prepared remarks and we will now turn the call back over to the operator for questions. Operator? Thank you.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tommorl indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands up before a person's star keys. One moment please, while we pull for questions. Thank you.

Speaker Change: So, we are definitely looking at ways to...

Speaker Change: Open More Locations, being more places, we have, we are not saturated from the store count perspective and then as we think about all the other opportunities we are always open and interested in hearing and learning and you know, if there is a strong ROI, you know, we'll definitely, would consider things.

Sharon Price-John: And then, as we think about all the other opportunities, we are always open and interested in hearing and learning. And you know, if there is a strong ROI, you know, we'll definitely consider things.

Sharon Price-John: And what is the track record with acquisitions? Have you looked at any small ones as their opportunity for a big one, or is it just really not feasible? We're not practical. I think, you know, it's important to understand it's a publicly traded company.

Speaker Change: and what is the track record with acquisitions? Have you looked at any small ones as their opportunity for a big one or is it just really not feasible?

Eric Beder: Our first question comes from the line of Eric Beater with SCC Research. Please receive it with your question. Good morning, congratulations on a solid Q2 and a strong start to Q3. Thank you. For many beans, great new product, a little bit lower price than the full size bear. Are you seeing that being as more of an add-on or increment or just a single purchase? How is that helping to change the overall mix of units and in pricing in terms of the stores? Thanks, Eric. Appreciate that.

Speaker Change: I think it's important to understand it's a publicly-traded company. Obviously we can't share what we're looking at or not looking at from an acquisition perspective or not. But on that front, we have often mentioned that there's...

Sharon Price-John: Obviously, we can't share what we're looking at or not looking at from an acquisition perspective or not. But on that front, we have often mentioned that we have an open mind to the right size, and most of the time when we're considering it, we're thinking about something that I get everybody else is additive or synergistic. And in some cases, we are making concerted investment investments in the company. And you may want to, if we recognize, it's often the case, buy the capability versus build the capability. And if there's something that can accelerate a particularly a strategy that's already proven and working for us that makes sense, we would do that.

Speaker Change: D.H.

Speaker Change: An open mind to the right types, the right size and most of the time when we're considering it, we're thinking about something that I get everybody else who's added it or synergistic. And in some cases we are making concerted investment in the company and you may want to, if we recognize it's often the case.

Sharon Price-John: The many beans have been a labor of love for us. We love the fact that we're not only are we creating unique many beans, but a lot of the ones that we create from a design perspective are what we call takedowns of some of our most popular products. One of the reasons we do that, it might be a little counterintuitive, but a lot of people want to buy the mini bean as a product that they've already purchased the larger make your own item.

Speaker Change: By the capability versus build the capability and if there's something that can accelerate a particularly strategy that's already proven and working for us that makes sense we would do that. The largest acquisition to my knowledge that we've made as a company however was the UK acquisition of the stores themselves. There was a competitive.

Sharon Price-John: The largest acquisition, to my knowledge, that we've made as a company, however, was the UK acquisition of the stores themselves. There was a competitive company running a like build-of-the-air concept in the UK. And we purchased that entity some years ago prior to both being joined. And that is the what we operate; there is still the bones of that author. Thank you.

Speaker Change: Company running a like build-up of their concept in the UK, and we purchased that into tea some years ago prior to both me and Voin, and that is the what we operate there is still the bones of that operation.

Sharon Price-John: That dynamic often drives the add-on purchase for many beans. One of the key reasons, so at NetNet, we're seeing as the sales would reflect in total, we're seeing an increase although there is a combination of people coming in. We're just a mini bean or four or five mini beans sometimes. That lower price point also helps us drive our conversion, which point mentioned if somebody's coming in and that's an easy pickup purchase for them.

Speaker Change: Okay, that's good color, thank you.

Operator: We have no further questions at this time.

Speaker Change: Thank you. We have no further questions at this time. I'd now like to turn the floor back over to management for closing comments.

Speaker Change: Thank you so much. We appreciate everybody being on to hear the results of our record breaking second quarter and we look forward to sharing third quarter results with you.

Sharon Price-John: But there is this other dynamic that's also an add-on purchase. And so you're seeing on total an increase overall of our sales and a slight increase in conversion, as we talked about. One of the reasons though strategically that we launched the mini beans was not just to put them in our stores, but as a proof point of the power of the brand to stretch beyond the make your own concept with plush.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lives at this time. Thank you for your participation and have a wonderful day.

Sharon Price-John: And we wanted to prove that inside of our own retail location. That opens up a wholesale opportunity for us because there's not that make your own experience process necessary for you to enjoy these products. And we are in the process of working with other retailers, not only here in the United States, but across the globe, to sell many beans as just their own plush item. That's a great point. Quickly on the international and the life of the opportunity, I would assume that as this is a success in one country, you're going to see people come to you for other locations, other territories.

Sharon Price-John: You know, I should be thinking about where we are in the potential growth for this group and where should we be thinking about it going longer term. Thank you. So thanks for the question Eric. International opportunity as it relates to this partner or operate location is really one of the bright spots for the organization. We are very pleased with the success that we have been seeing so far in some of the countries that we are operating and expanding and definitely positive feedback from our partners.

Sharon Price-John: As you may recall over the last couple of years after COVID, it was really challenging for anybody to travel and to go and expand some of those relationships. You know, we have many inbound requests about some of these opportunities and we are working on some of those and we continue to evaluate and we want to make sure that we explore all the opportunities and find the right partners that can scale in respective markets that they are operating.

Sharon Price-John: But we believe this is going to be an opportunity for many years to come. When you think about where could this go, if we've mentioned this in the past, Eric, just from a macro perspective, and this would be inclusive of the operated source that we have in the UK and Canada and Ireland. But most of the time, US based companies look at store opportunities or even business opportunities in general as the scale in the United States usually is about half or 40% of what's possible on a global basis.

Sharon Price-John: So we've mentioned before that we feel that it's not unreasonable to believe that we could have as many stores outside of the United States as we have inside the United States. But just note when you're modeling that right now that's leaning toward more partner operated and franchise operated, which is a little different way to calculate it from a retail revenue perspective. Okay. Thank you.

Sharon Price-John: Enjoy the early Halloween that stores look great and good luck for the rest of the year. Thanks, Eric.

Michael Baker: Our next question comes from a line of Michael Baker with DA Davidson. Please receive your questions. Okay. Thanks. The back half guidance suggests you know, much better trends than the first half. I think even better than the second quarter, which seems reasonable because you're doing really well. But I guess you know, what sort of risks or if you can flush out the back half guidance, your holiday expectations, how do you think about, you know, besides you guys, we're seeing a lot of consumer, you know, negative consumer data points. People are concerned about the election. How does all that play into your outlook that, again, the second half seems like it's going to be just a lot better than the first half?

Sharon Price-John: So I'll take that. Thanks for the question. You know, our guidance really hasn't changed from the beginning of the year. We keep reiterating. We have not been this being an election year. There is going to be a lot of ups and downs as well as you know, we have some sharpness in our comparison with the prior year. We always said that it's going to be back half weighted. And when you think about, we shared about store count, we open about 23 stores so far on the year today basis, 17, we added in the second quarter, 16 first quarter, you know, we expect some of that stuff to accelerate to get to at least net 50 by the end of the year.

Sharon Price-John: But speaking from the con perspective and some of the comparisons with last year, second quarter was our toughest comp quarter because you know, we saw some strong results last year. And as we went last year into Q3 and to Q4, our business was a little bit softer, so we believe we have some more opportunities later on in the year. And as well, we are excited about the how we success that we have seen so far and the amount of investment that we made in that product.

Sharon Price-John: And so that gives us the confidence as we think about the full year guidance. In addition to that, there is still some uncertainty. That's why we have the high and low end range of the guidance. We feel good about things that are within our control and what we can do. But you know, the external outside factors that could impact us, you know, are clearly outside of our control. And thus, you know, some of that impact for the range the way we have. Yeah, it makes sense. A lot of good things there.

Voin Todorovic: Another, you know, I think good news situation, but maybe a little more color is just to clarify. So Web demand was down 28% in the second quarter and you're saying it's it's up in the third quarter. Did you say up double digits in the third quarter? So I just want to make sure we're, you know, those metrics are sort of apples to apples. You're going to use one from down 28% to now up double digits or am I hearing that wrong?

Voin Todorovic: So we were down on a full quarter, down 28.2%. We are up strong double digits so far on year on the quarter date, Q3. Okay. And so then I guess the fall out there is that just some of the, I presume you should see, is there anything in the comparison that's influencing that? Is that improvement? Because of, you know, the better search all the initiatives that you talked about and the benefit you're getting from bringing in sales, forces, all, and so on, etc.

Voin Todorovic: It's the combination of things as we noted on the, in the prepared remarks. It is some of the improvements in our SEO strategy, some shifts in search engine. That is search engine. Excuse me. SEO strategy, some other of our efforts on websites, integration. But most importantly, I think and we know this, we've had some product timing shifts. And then we mentioned that even in the last call and those product timing shifts are impactful for the web particularly.

Voin Todorovic: So for example, when we launched this Halloween product collection, the first Hello Kitty phase that not hell, the first pumpkin kitty phases that we mentioned which was a vault product, they were online only and that really did drive the business significantly. And we had not launched any of the Halloween product as an example until much later in the third quarter last year. Okay, that makes sense. Okay.

Voin Todorovic: Thank you very much.

Gregory Gibas: Our next question comes from a line of Greg give us with Northland securities. Please proceed with your question. Hey, good morning, Sharon and boy, thanks for taking the question, congrats on the strong results. You know, want to follow up on just new store growth and your expectations there, you know, solid step up and in Q2 17 versus 6 and Q1, you know, reiterating your expectations for the full year, just want to get a sense of maybe the cadence of new store growth and Q3 versus Q4. And also, if you maybe discuss, I guess the geographic breakdown of the new store growth that you had in the quarter.

Sharon Price-John: So I'll take that. So thanks for the question again, definitely we are pleased about our opportunities from the store count growth perspective. So some of those things, especially internationally partner operating locations, there are some additional logistics things to work through and especially with some of the challenges around logistics routes around the world that are impacting and delaying in some case some of these openings or the product and equipment flow. But again, the goal would be to open all that stuff to be ready for the holiday season as much as possible.

Sharon Price-John: When we think about some of the growth, we said a lot of those are going to be part of operated between both domestic and international. And you know, there is some part some of the on and operated locations that we are expanding in some of the key markets and share and touched on few of the stores in some of the key tourist areas that we are opening that we are excited about.

Voin Todorovic: Great, that's helpful. And I know you don't like to necessarily point to kind of same-store sales growth, but wanted to get a sense there, just given you know there were a good number of openings this quarter and you know with webbing down I know it makes it a little challenging, but just wanted to get a sense of maybe same-store sales kind of on a brick and mortar front. So we don't talk about the same-store sales and you know but I'll try to provide some color about you know as we mentioned earlier in the year because the 53rd week shift when you are making that true comparative week over week you know our gap 13 weeks this year versus 13 weeks last year do our benefiting from the same thing that we were having some headwind in the first quarter of the year.

Voin Todorovic: So if you are looking at the existing store sales plus you know this week shift you know like an existing source you know we have seen an improvement we also have seen some growth from the new stores that's offsetting this decline in web demand being flat for the quarter and also another thing to point out this 28% in web demand that we are seeing compared to last year 25 to 30% of our business that we've seen from the web demand perspective gets fulfilled through our store location and we see and we report those sales based on the location where the stores are where the shipments are fulfilled from in this case that from our stores. So if the web demand theoretically was flat to last year and we kept the same things you know our stores would have seen even stronger results.

Gregory Gibas: Great that's helpful thank you.

Steven Silver: Our next question comes to a line of Steve Silver with Argus Research please please proceed with your question. Thanks operator and congratulations on the Q2 milestone. So a lot of the questions have already been answered but one I have is the the discussion around certain items from the Halloween collection being depleted. I know you guys have spoken on previous calls about the investments in the supply chain and managing inventory levels but can you just talk a little broadly about how the supply chain is set up to replenish items quickly I guess given the fact that the company is so heavily involved with seasonal and holiday items I just can we talk a little bit about how the company just is able to replenish so quickly in the supply chain thanks.

Steven Silver: On some of the seasonal items it's obviously more difficult because the more truncated the time period is the harder it is to push something through the supply chain process but we work very hard with to try to be as predictive as possible based on our history and we've also learned through the years whether that's through not just seasonal items but also sometimes items associated with hot licenses that might be event driven like a film to manage the inventory and oftentimes as I mentioned for Halloween last year we will sell out before the date. Now in this particular case we learned as we tried to do under most circumstances that there's a big shift in Halloween and we did the research to support that that shift that there's much more interest in some consumers across the board on Halloween so as we mentioned in remarks we increased our inventory our breath of product and in this particular case with the pumpkin kitty launch we actually have a flow coming in so it's hitting web first and then it hits the stores so we still have a couple of bites at this for the flow of Hello Kitty we didn't have get a sense and if we could catch some more of it and increase the the in the number of units that we ordered for the last flow we were able to do that so there's a lot of different levers that we try to pull to optimize without getting ourselves way over our skis when we don't have specific knowledge in this particular case we did have some good knowledge because we had had pumpkin kitty in the past the supply chain process is a holy is an entirely different kind of challenge for us that has you know issues kind of across the board from sourcing to shipping but the other thing to think about that I think it's really important is although we do have seasonal and licensed products still the majority of our business is consistent ongoing evergreen items that our core business is made up of classic teddy bears, birthday treats bears, pallette bunnies we still do the majority of business there and we're able to manage our supply chain and basically and I'm careful in making statements like this always have something available for the consumer whether online or in store that we hope they will like it might not always be the licensed product or the exact right seasonal product but because most of our business is evergreen it does allow us to sometimes order long order short stay deep stay in inventory in a way that it might be difficult for some others because again there's no it doesn't matter from a season size sizes or age there's no aged inventory for some of these core classic products teddy bear always always appreciate Great.

Steven Silver: Thanks for the color. Congratulations again.

Operator: As a reminder, if you would like to ask a question, press star one on your telephone keypad.

Doug Lane: Our next question comes from a line of Doug Lane with Water Tower Research. Please receive your question. Yes, thank you.

Sharon Price-John: Good morning, everybody. I was just curious because of really business and good here and financially you're very strong. And I'm just wondering, is there an opportunity to accelerate three investments in your business, either through more capital expenditures or perhaps acquisitions? What are your thoughts on that front? So thank you for the question. Yes, we are very pleased with things that you are sharing that our balance is healthy that our profitability has been solid and that we continue to find ways to optimize the business and support our growth.

Sharon Price-John: When you think about there are opportunities, you know, like we have regular discussions with our board and look at ways between investing in the business that's always our number one opportunity, returning money to shareholders and looking at other opportunities to grow the business. One of these things, even though we are expanding significantly our presence globally, we are doing it through this asset-like model where we are opening stores through our partner-operated locations and very asset-like.

Sharon Price-John: So we are in more places without spending a lot of capital. In addition to that, we are looking at opening stores and sharing covers some of those stores even in domestic markets and in UK, we shared some stores that we opened last year in these storey locations. So we are definitely looking at ways to open more locations, being more places. We have, we are not saturated from the store count perspective. And then as we think about all the other opportunities, we are always open and interested in hearing and learning.

Sharon Price-John: And you know, if there is a strong ROI, you know, we'll definitely would consider things. And what is the track record with acquisitions? Have you looked at any small ones as their opportunity for a big one or is it just really not feasible? We're not practical. I think, you know, it's important to understand it's a publicly-traded company. Obviously, we can't share what we're looking at or not looking at from an acquisition perspective or not.

Sharon Price-John: But on that front, we have often mentioned that we have an open mind to the right size and most of the time when we're considering it, we're thinking about something that I get everybody else is additive or synergistic. And in some cases, we are making concerted investment investments in the company. And you may want to, if we recognize, it's often the case, buy the capability versus build the capability. And if there's something that can accelerate a particularly a strategy that's already proven and working for us that makes sense, we would do that.

Sharon Price-John: The largest acquisition to my knowledge that we've made as a company, however, was the UK acquisition of the stores themselves. There was a competitive company running a like build-of-the-air concept in the UK. And we purchased that entity some years ago prior to both being joined. And that is the what we operate there is still the bones of that author.

Operator: Thank you. We have no further questions at this time.

Sharon Price-John: I'd now like to turn the floor back over to management for closing comments. Thank you so much. We appreciate everybody being on to hear the results of our record-breaking second quarter, and we look forward to sharing third quarter results with you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Q2 2024 Build-A-Bear Workshop Inc Earnings Call

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