The company's stock was up more than 8% in midday trading on the announcement, to $13.73 per share. Shares closed up about 10% to $13.94.
The St. Louis-based toy retailer has hired investment bank Guggenheim Securities as its financial adviser and Bryan Cave as its legal adviser on the review, which will weigh the "full range of strategic alternatives."
Build-A-Bear said it has set no timetable for the process.
"The authorization to explore strategic alternatives by our Board will enable us to evaluate the various opportunities to potentially accelerate our key growth initiatives while enhancing total shareholder value," said Sharon Price John, the company's CEO, in a statement.
She noted that the company has had three years in-a-row of positive same-store sales and growth in profit, while generating strong cash flow.
Build-A-Bear would be an ideal target for a middle market private equity firm, with a market cap of nearly $212 million and an enterprise value of $181 million, when subtracting cash and cash equivalents of nearly $31 million while having no debt.
The enterprise value works out to be about 4.41 times the projected adjusted Ebitda of close to $41 million for the fiscal year ending on Dec. 31, 2016, well within range of what PE firms have historically considered to be attractive leveraged-buyout candidates in the retail space.
Not only does Build-A-Bear have the balance sheet for a buyout, but also to lever up for share repurchases or to pay out dividends.
During the first quarter, the retailer repurchased about 133,000 shares, spending a total of $1.5 million, it said.
While the company may have been looking to boost its share price through buy-backs, the move proved to be a sore spot for activist investor Cannell Capital, led by J. Carlo Cannell.
Cannell, which owns a nearly 5.1% stake in the toy retailer, according to data provided by Bloomberg, complained in a March 31 letter to board chairman Mary Lou Fiala that the company paid more to buy back shares then it needed to through open market purchases rather than tender for shares either via a single price or a modified Dutch tender.
Cannell also pointed out that allowing a CEO the ability to approve or reject candidates for membership on the board also interferes with its independence and ability to oversee the company's management and the compensation of said executives.
The investor was also not happy that Build-A-Bear's board approved an increase in compensation when the retailer's stock was near a 52-week-low.
Despite the gripes, Build-A-Bear continues to have plenty of bright spots.
During the first quarter of 2016, the toy retailer also saw a same-store sales increase -- an important measure of a retailer's health -- of 2.2% in the first quarter.
The company is also seeing success at its new 15-store Discovery format, with sales up 14%, it said.
Pretax income, however, was down, to $5.3 million from $7.1 million for the same period a year prior, although the recent figure included $1.9 million in business expansion costs, Build-A-Bear said.
Net income also declined to $3.5 million from $6.8 million, the company said, because its tax rate increased to 33.3% from 3.3% due to the "release of its tax valuation allowance in fiscal 2015."
Revenue was up at Build-A-Bear, to $95 million from $91.7 million for the same period a year prior.