Build-A-Bear Workshop's CEO Discusses Q4 2011 Results - Earnings Call Transcript

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

Q4 2011 Earnings Call

February 16, 2012 09:00 am ET

Executives

Maxine Clark – Founder, Chairman and Chief Executive Bear

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

Allison Malkin – ICR

Analysts

Sean McGowan – Needham & Co.

Presentation

Operator

Greetings and welcome to the Build-A-Bear Workshop’s fourth quarter and fiscal 2011 results conference call. (Operator instructions) A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Allison Malkin of ICR. Thank you, Ms. Malkin. You may begin.

Allison Malkin

Good morning and 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 webcast 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 2011 fourth quarter fiscal year results. On our call today I will discuss our full year results including our fourth quarter, then I’ll turn the call over to Tina Klocke, our Chief Operations and Financial Bear, to review the financial details. After that, I’ll conclude the call with an overview of our growth plans for 2012 and beyond.

For the full year of 2011 we had essentially flat net retail sales and our comp store sales declined about 2% on a consolidated basis. I am extremely disappointed to report a sales decrease in the fourth quarter, particularly on the heels of two periods of positive comps in our second and third quarters.

We do understand the reasons for the decline and we are already putting changes into effect in 2012 to improve our results. In fact, through Valentine’s Day, our comp store sales are essentially flat in North America, and the UK and e-commerce is up almost 9%. Coming off of a solid third quarter in which we grew our total retail sales, comparable store sales and e-commerce, we believe that we had a line up to the fourth quarter that would continue to improve our sales.

Not only do we have a solid core assortment of Build-A-Bear Workshop proprietary products, but we also had tie-ins with highly anticipated feature film releases, particularly Happy Feet Two and Shipwrecked featuring Alvin and the Chipmunks. We were excited that the movie industry was placing such a high emphasis on family-oriented films, and given our strong sales history of products that tied into these movies, we felt that our holiday would benefit from these partnerships.

Unfortunately for the movie industry and for Build-A-Bear Workshop, the holiday season at the theater was one of the most disappointing in years. Both Happy Feet Two and Shipwrecked were sequels with strong historical box office performance and very strong sales on the feature characters at Build-A-Bear Workshop, but neither film performed as projected or in accordance with their box office.

In fact, box office revenues were down over 60% and 40%, respectively, to their last releases. This contributed to a sales shortfall to our plans for our movie-related product. Had either of the films performed to expectations, our fourth quarter would have had positive sales on a consolidated basis.

As many of you know, the holiday season was also very discount-driven. We anticipated this trend and offered promotions throughout the holiday to entice shoppers, including our popular bundle promotion, which we’ve used successfully in the past to increase average transaction value and guest conversion. However, when the characters from the movies came up short of plan, we had to step up our promotions to move the inventory and drive traffic. These promotions impacted our merchandise margin for the fourth quarter, which declined by 150 basis points from the prior year. It was the right thing to do given the season and our product challenges.

The final note on the fourth quarter is that our gift card sales increased on a consolidated basis indicating that the Build-A-Bear Workshop’s gift of the experience is still very much in demand. To add to that, our guest experiences for us for the fourth quarter were at record levels.

As we begin 2012, we recognize the global economy remains uncertain and consumers are still focused on value and promotions, and yet we have demonstrated that when we have the right product, make it easy for moms to say yes, and deliver our signature guest experience, we’ve been able to grow our sales both in our stores and online.

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