Build-A-Bear Workshop, Inc. ( BBW)

Q3 2011 Earnings Call

October 27, 2011 9:00 AM ET

Executives

Allison Malkin – ICR

Maxine Clark – Founder, Chairman and Chief Executive Bear

Tina Klocke – Chief Operations and Financial Bear, Treasurer and Secretary

Analysts

Sean McGowan – Needham & Company

Janet Kloppenburg – JJK Research

Berke Bakay – BBS Capital Fund

Tom Filandro – Susquehanna Investments

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Third Quarter 2011 Build-A-Bear Workshop, Inc., Earnings Conference Call. My name is Carris [ph], and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, today’s call is being recorded for replay purposes. And I would now like to hand the call over to your host for today, Ms. Allison Malkin of ICR. Please proceed ma’am.

Allison Malkin

Thank you. Good morning. Thank you for joining us. With me today are Maxine Clark, Chairman and Chief Executive Bear; and Tina Klocke, Chief Operations and Financial Bear. Before I turn the call over to management, I want to remind members of the media who may be on our call today to contact us after this conference call with their questions. We ask that you limit your questions to one question and one follow-up, this way we can get to everyone’s questions during this one-hour call. Feel free to re-queue if you have further questions.

Please note that our call is being recorded and broadcast live via the internet. The earnings release is available on the Investor Relations portion of our corporate website and a replay of both our call and web cast will be available later today on the IR site.

Before we get started, I will remind everyone that forward-looking statements are inherently subject to risks and uncertainties. Our actual results could differ materially from those currently anticipated, due to a number of factors including those set forth in the Risk Factors section in our Annual Report on Form 10-K. And we undertake no obligation to update or revise any forward-looking statements.

Now, I would like to turn the call over to Maxine Clark. Maxine?

Maxine Clark

Thank you, Allison, and good morning everyone. Thank you for joining us to discuss our third quarter fiscal 2011 results. For our call today, I’ll discuss our third quarter performance and give insight into our product and marketing strategy.

Following my remarks Tina Klocke, Chief Operations and Financial Bear, will review our financial results and update you on progress with cost-savings related to our recent consulting project and then we will open the call to take your questions. I am very pleased to report solid profitability of $0.05 per diluted share in the third quarter, a significant improvement over the loss reported in the third quarter last year.

In the quarter we grew our total retail sales, our comparable store sales, our e-commerce and our international revenues. We improved our gross margins and real life savings and our expense structure. We believe our results show continued progress towards our number one objective to increase shareholder value by profitably growing sales. Additional highlights of the quarter include delivering another quarter of positive comp growth and increasing our third quarter comp for two consecutive years.

We had double-digit growth in our e-commerce business. The size enhancements that we made and continue to make, our marketing initiatives and our social media presence are paying off as both top line and key metric improvements in this channel. We reduced promotional activity and we put an intense focus on product cost and optimization of retail pricing, which led to an increase in our retail gross margins of 160 basis points.

We started seeing expense savings from our consulting project and are on target to hit our annual goal. Our international revenues from franchised operations increased 14% in the quarter. To put our full international presence in perspective, when you combine our company owned stores in Canada and Europe with our franchised operations we had 153 stores in 16 countries at quarter end. We continue to see major opportunities to grow internationally in existing countries as well as in new countries.

We continue to believe Build-a-Bear Workshop stock is a great value and we invested $5.1 million of our cash to repurchase 934,000 shares of our common stock during the quarter. Now let me talk about some of the key drivers of our sales growth in the quarter. We effectively capitalized on the back-to-school season with strong results in the key traffic months of July and August, which led to a solid quarterly performance. As we mentioned at our second-quarter call our July launch of Smurfs in conjunction with movies release was a great success.

The time with the Smurfs enhanced our own marketing and generated lot of buzz and excitement. We will continue to partner with relevant and brand appropriate characters and movies as these tie in and help bring traffic to our stores, which drive sales across all of our products. In August we held our annual bundle promotion where we offer any animal, any outfit, and any pair of shoes for 29.99. We supported this promotion with our full marketing arsenal including TV advertising, direct mail and e-mail, online and in store.

This is the third summer we offered the promotion. Our guests responded very positively and we have improved our sales and execution each time we held the event. In September we introduced Snoopy for the first time with a fun movement and musical feature as well as our Halloween launch Hello Kitty. We also eliminated several promotions that ran in 2010 keeping the marketing and operational focus on the excitement of the new product launches and improving our overall profitability for the quarter.

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