The Five Dumbest Things on Wall Street This Week

4. Another Tell-Tale Sign of a Bear Market

We at the research lab have nothing against cute little teddy bears. Except, that is, when someone tries to persuade us that they're a sound business investment.

That's why our fluff-in-the-market alarm bells started ringing Thursday: Retailer Build-A-Bear Workshop filed to go public.

Build-A-Bear, if you're not familiar with it, is a chain of stores "providing a 'make your own stuffed animal' interactive 'retail-tainment' experience." Walking into one of the company's stores, explains Build-A-Bear in its prospectus, customers can "stuff, fluff, dress, accessorize and name their own teddy bears and other stuffed animals."

The company's concept, says Build-A-Bear, "capitalizes on what we believe is the relatively untapped demand for experience-based shopping as well as the widespread appeal of stuffed animals."

Call us cranks, but this doesn't quite strike us as a brand that will last for the ages -- or even a few decades, like Toys R Us. Once the novelty wears off at each store, it's easy for us to imagine the demand for make-your-own pets to be as durable as that for, say, Cabbage Patch Kids, Beanie Babies or the Pokemon lifestyle. Thank goodness none of them went public.

Confirming our suspicions, we note that same-store sales at Build-A-Bear declined 6.7%, 9.7% and 15.9% in 2001, 2002 and 2003, respectively. Granted, comparable store sales rose 13.8% in the first half of 2004, thanks to a new marketing program launched in February. But a six-month reversal in a three-year trend doesn't quite calm our nerves.

To Build-A-Bear's credit, it's actually making money -- and increasing amounts of it -- unlike some other recent IPO candidates.

Yet as much as we'd like to cuddle up to Build-A-Bear, some fuzzy little red flags get in the way. There's the related party transactions, for example: The $9.4 million in fixtures and furniture the company has bought from the husband of the company's chief executive. There's the suspiciously cutesy practice of referring to the company's officers as "bears," as in "Chief Executive Bear and President" Maxine Clark.

And, finally, there's the lousy record of the only publicly traded teddy bear company that we know of: the mail-order firm Vermont Teddy Bear (BEAR), at which teddy bear sales fell 6% in the first nine months of the current fiscal year. If you'd managed to buy its stock at the $10 offering price back in 1993, why, you'd still be $5 underwater.

Yes, if you ask us, Build-A-Bear as an investment is a load of Pooh.

5. Schwab's Limitations of Statutory Disqualifications

We're all for the reintegration of convicted criminals into the workforce. But around certain occupations -- say, the driving of school buses and the handling of brokerage accounts -- we have our concerns.

It appears that not everyone always shares those concerns, though. Take this week's news about Schwab (SCH).

As ace reporter Matt Goldstein pointed out Monday, the New York Stock Exchange fined Schwab for failing to comply with the NYSE's policy related to employees and contractors with criminal records, over a 6 1/2-year period. Neither admitting nor denying charges, Schwab agreed to a $250,000 fine.

Schwab Story Felons, um, need not apply

Schwab, the NYSE says, got into the careless habit of hiring folks though their criminal records disqualified them from working for an NYSE member firm. (These rules forbid employment -- unless the NYSE grants specific permission -- of anyone with a felony conviction within the past decade, or anyone who has been found guilty of specific misdemeanors including burglary, false report or forgery.) In some cases, Schwab conducted inadequate background checks that would have unearthed employees' "statutorily disqualified" status; in other cases, employees disclosed their SD status, but Schwab went ahead and hired them anyway.

Meanwhile when other (presumably non-disqualified) employees got into legal trouble, Schwab failed to report these events, as required, to the NYSE.

It's one thing to forgive and forget. But it's another to not even care in the first place.

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