Build-A-Bear Workshop, Inc. (NYSE: BBW) today reported results for the fourth quarter and fiscal year 2019 ended February 1, 2020.
Sharon Price John, Build-A-Bear Workshop President and Chief Executive Officer, commented, “In fiscal 2019, we remained focused on our key growth strategies and disciplined expense management, and although the year did not unfold on a by-quarter basis as we originally expected, we ultimately delivered annual pre-tax profit in line with the guidance that we issued at the beginning of the fiscal year. During the fourth quarter, we saw a positive shift in retail traffic and sales leading into Christmas, which then carried over into the post-holiday period with our data indicating that Build-A-Bear outpaced national traffic trends over that time. We attribute the improvement to several factors including a meaningful shift to digital marketing that benefited both our online and in-store business and helped drive an increase in sales of gift products that appealed to a broad consumer base. We also had higher sales and redemptions of gift cards, indicative of the ongoing trend-right appeal of our hands-on retail experience.”
“We believe these results, which include our ninth consecutive quarter of double-digit e-commerce expansion and an over 80% increase in commercial revenue for the year, demonstrate the success of our strategy to diversify our business model by leveraging the strength of our brand. Our business year-to-date has been positive, although we recognize the uncertainty in the evolving marketplace due to the coronavirus. As such, we are evaluating potential business scenarios while remaining focused on our long-term goal to build on the foundation and infrastructure that we have been developing for several years,” concluded Ms. John.
Fourth Quarter 2019 Highlights (13 weeks ended February 1, 2020, compared to 13 weeks ended February 2, 2019):
- Total revenues were $104.6 million, a 3.0% increase compared to the fiscal 2018 fourth quarter, inclusive of a 2.1% increase in net retail sales and a 46.2% increase in commercial revenue;
- By geography, total revenues increased 3.6% in North America and declined 2.1% in Europe compared to the fiscal 2018 fourth quarter. Total revenues also included the Company’s ninth consecutive quarter of double-digit growth in consolidated e-commerce sales;
- Retail gross margin expanded to 50.4%, representing an improvement of approximately 450-basis points compared to the fiscal 2018 fourth quarter, including approximately 310-basis points related to the leverage of fixed occupancy with the remainder driven by expansion in merchandise margin;
- Selling, general and administrative expenses (“SG&A”) were $45.1 million, a decrease of $2.7 million primarily due to lower non-cash charges than were reported in fiscal 2018;
- Pre-tax income was $7.6 million, a $14.2 million improvement from the fiscal 2018 fourth quarter, or a $6.1 million increase over the prior period when adjusted for costs primarily related to non-cash charges (see reconciliation of GAAP to non-GAAP results);
- Income tax expense was $1.4 million, compared to an income tax expense of $3.8 million in the fiscal 2018 fourth quarter; and
- Net income was $6.2 million, or $0.42 per diluted share, compared to a net loss of $10.4 million, or $0.72 loss per diluted share, in the fiscal 2018 fourth quarter; on an adjusted basis, net income increased $6.7 million, or $0.45 per diluted share (see reconciliation of GAAP to non-GAAP results).
Fiscal Year 2019 Highlights (52 weeks ended February 1, 2020, compared to 52 weeks ended February 2, 2019):
- Total revenues were $338.5 million, a 0.6% increase compared to fiscal 2018, inclusive of a 0.9% decrease in net retail sales and an 81.3% increase in commercial revenue;
- By geography, total revenues increased 1.3% in North America and declined 5.3% in Europe compared to the prior fiscal year; consolidated e-commerce sales increased by double-digit rates compared to the prior year;
- Retail gross margin expanded to 45.4%, a 270-basis point improvement compared to fiscal 2018, including approximately 160-basis points related to the leverage of fixed occupancy costs with the remainder driven by expansion in merchandise margin;
- SG&A expenses were $152.0 million, a decrease of $5.1 million primarily due to lower non-cash charges than were reported in fiscal 2018;
- Pre-tax income was $1.6 million, a $20.1 million improvement from fiscal 2018, or a $8.7 million increase over the prior period when adjusted for costs primarily related to non-cash charges (see reconciliation of GAAP to non-GAAP results);
- Income tax expense was $1.3 million, compared to income tax benefit of $0.6 million in fiscal 2018; and
- Net income was $0.3 million, or $0.02 per diluted share, compared to a net loss of $17.9 million, or a loss of $1.23 per diluted share; on an adjusted basis, net income increased $6.1 million, or $0.42 per diluted share (see reconciliation of GAAP to non-GAAP results).
Store Activity:
The Company maintains a high level of lease optionality with over 70% of corporately-managed stores having a lease event within the next three years. As of February 1, 2020, the Company operated 372 corporately-managed locations, including 316 in North America inclusive of 22 shop-in-shops within select Walmart locations, and 56 outside of North America. Through its third-party retail model, there were 60 stores in operation with relationships that included Carnival Cruise Line, Great Wolf Lodge Resorts, Landry’s and Beaches Family Resorts. The Company’s international franchisees ended the year with 92 stores in 12 countries.
Balance Sheet:
As of February 1, 2020, cash and cash equivalents totaled $26.7 million. The Company ended the fiscal year with no borrowings under its revolving credit facility.
Total inventory at year-end was $53.4 million, down 8.5% from fiscal 2018 year-end. For fiscal 2019, capital expenditures totaled $12.4 million and depreciation and amortization were $13.7 million.
As the Company previously noted, for comparison purposes, on February 3, 2019, it recorded lease liabilities of $176.2 million upon adoption of the new lease accounting standard, also referred to as ASC Topic 842, based on the present value of remaining lease payments. A corresponding right-to-use asset of $151.5 million was recorded on the balance sheet upon adoption which was net of accrued and prepaid rent, deferred lease incentives and impairment charges.
Fiscal Year 2020 Expectations:
The Company notes that it has had an increase in total revenues on a year-to-date basis in fiscal 2020 and had intended to share more detailed guidance that included ranges of expected growth in both revenue and pre-tax profit compared to fiscal 2019. However, given the rapidly changing environment with COVID-19, the Company is refraining from providing specific guidance and is evaluating a variety of scenario plans for the business going forward.
Note Regarding Non-GAAP Financial Measures
In this press release, the Company’s financial results are provided both in accordance with generally accepted accounting principles (GAAP) and using certain non-GAAP financial measures. In particular, the Company provides historic income and income per diluted share adjusted to exclude certain costs and accounting adjustments, which are non-GAAP financial measures. These results are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help identify underlying trends in the Company’s business and provide useful information to both management and investors by excluding certain items that may not be indicative of the Company’s core operating results. These measures should not be considered a substitute for or superior to GAAP results. These non-GAAP financial measures are defined and reconciled to the most comparable GAAP measure later in this document.
Today’s Conference Call Webcast:
Build-A-Bear Workshop will host a live internet webcast of its quarterly investor conference call at 9 a.m. ET today. The audio broadcast may be accessed at the Company’s investor relations website, http://IR.buildabear.com. The call is expected to conclude by 10 a.m. ET.
A replay of the conference call webcast will be available in the investor relations website for one year. A telephone replay will be available beginning at approximately noon ET today until midnight ET on March 18, 2019. The telephone replay is available by calling (844) 512-2921. The access code is: 13698947.
