Build-A-Bear Workshop, Inc. (BBW) on Q1 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to Build-A-Bear Workshop First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Ms. Allison Malkin of ICR. Please proceed.
Allison Malkin: Good morning. Thank you for joining us. With me today are Sharon Price John, CEO; and Voin Todorovic, CFO. For today's call, Sharon will begin with a discussion of our first quarter 2021 performance, our strategic initiatives, and our outlook for the year. After, Voin will review our financials and guidance in more detail. We will then open the call to take your questions. We ask that you limit your questions to one question and one follow-up. This way, we can get to everyone's question during this one-hour call. Feel free to requeue if you have further questions. Members of the media who may be on our call today should contact us after this conference call with your questions.
Sharon Price John: Good morning, everyone, and thank you for joining us today to discuss our results for the first quarter of fiscal 2021. We delivered a record-breaking quarter on many levels. We attribute this in part to the investment and actions that we put in motion prior to the pandemic and in many cases accelerated during the pandemic. These include leveraging the increased fulfillment capacity due to our warehouse reconfiguration and systems upgrades, driving innovation with intense efforts on merchandise and marketing, including aggressive positioning of our Gift Giving program, as well as transforming our omni-channel capabilities supported by our Salesforce partnership. Overall, we believe that the discipline and relentless focus we've had on executing our strategic plan put us in a position to take advantage of the improving consumer demand that we saw in the quarter. The quarter's results were outstanding on both top and bottom line, including total revenues of $92 million, up 97% from 2020 and up 9% from the fiscal 2019 first quarter. This includes increases in both our physical stores and digital channels. We believe the improvement was driven by the strength of the emotional connection that has kept our Build-A-Bear brand a desired and relevant brand, strong merchandise mix, and improved digital marketing program. While our company benefited from better traffic trends coincided with the timing of the stimulus package and pent-up demand as consumers sought to reengage in personal experiences, we delivered a material improvement in conversion rates and our highest level of dollars per transaction in our history, which drove our sales growth. Notably, we had an 87% increase in e-commerce demand compared to the fiscal 2020 first quarter and a 194% increase versus the 2019 period. This was fueled by a triple-digit increase in transactions from new guests, highlighting the effectiveness of our digital marketing campaigns.
Voin Todorovic: Thanks, Sharon; and good morning, everyone. We are pleased with a strong start to our year and the robust momentum we have in our business. These results reflect the affinity consumers have with the Build-A-Bear brand and the progress we have made towards our strategic goals, including leveraging our elevated digital platform and competency to transform our omni-channel capabilities. We believe that pent-up demand and stimulus programs in the US positively benefited our business. Throughout the period, we saw improving traffic and sales trends in our brick and mortar locations across the US as the quarter progressed. Our stores in the United Kingdom and Ireland were closed for the majority of the quarter with reopening starting on April 12. Sales in those locations have been meeting our expectations. As Sharon noted, thus far in the second quarter, we have maintained strong momentum.
Operator: Thank you. At this time, we will conduct a question-and-answer session. Our first question comes from Eric Beder with SCC Research. Please proceed.
Eric Beder: Good morning. Congratulations.
Voin Todorovic: Good morning, Eric. Thank you.
Eric Beder: So you are returning back to normal here in the space, how do you look at the potential to eventually add parties to the mix and the potential to see gains from movies coming out as being part of the mix again?
Sharon Price John: Thank you, Eric. Well, as we have carefully done throughout the pandemic, we follow the CDC guidelines and balance that with our own needs from a business perspective and the oversight of the safety of our guests and our associates. So we are carefully, as we would and as we have, assessing the party business, because clearly that gathers groups of children together and adults and we just have to be mindful of that. I think that we're looking out into the future, we would expect to see parties. Assuming everything stays the same and there is no resurgence of the pandemic, I think we'll start to see parties trickle back into the system later this year. We have not specified date yet. It may depend on the size of the store, so we'll be rolling them out based on, again, the CDC guidelines of distancing and assuring that we can meet the needs as well as not just point other guests that are there to participate in Build-A-Bear given our higher demand for natural traffic that we can service them appropriately at the same time. So there's a lot of levers. It seems so simple. Just flip the switch and start having parties, but there's a lot of complexity involved in. We thus far have been, I think, diligent and prudent and it has served us well. On your question about the movies, we're certainly looking forward to a lot of these films that we've already had -- as we mentioned, we have these best-in-class license relationship. Some of these films that were planned, were planned for 2020 and 2021. They've been pushed out. We've been in relationships with these guys for a long time. We already have all the products developed. In some cases, some of the products may still -- we're looking forward to it. And I think we're just -- we're going to have to be again mindful. I'm not sure anyone is willing to take the big bet on how many people are going to go out to see -- goes straight to the theaters, particularly with children. But I think that either way, our partners will find an approach, a marketing approach that makes the characters appealing and exciting, and this is right in our wheelhouse of knowing how to optimize. So, we're looking forward to that.
Eric Beder: Great. And one more. So, last year, Baby Yoda was a huge success. It went from online to stores and it's still doing well over a year plus into it.
Sharon Price John: Yes.
Eric Beder: When you look at Animal Crossing, does that -- you've started to sell still online, you can order in stores, is that kind of aggression that we had saw to build kind of how successful, then do you believe that as kind of what we'll be seeing with Animal Crossing, and do you believe that franchise has the ability to be something like a Pokemon or Yoda that has a tremendous long life to it as opposed to kind of a movie, which is a little bit shorter? Thanks.
Sharon Price John: Well, sometimes the films are what we call spiky and sometimes they have longtail. It really depends on the franchise. And so I can't categorize that all movies act this way or that way when the -- because sometimes the movie itself becomes a franchise. Star Wars is a great example of that. For Yoda, which is adjunct product, actually a Baby Yoda, a Grogu, to the Star Wars franchise, that has maintained some of excitement because of The Mandalorian continues to -- had continued to have new episodes. So as long as the Lucasfilm believes that there is potential opportunity with The Mandalorian series, I think we could expect to see some business associated with Grogu. In fact, it's one of our top selling graduation gifts this year was a Grogu with a congratulations 2020 grad sash. So he's very searchable. The second -- your second question about Animal Crossing, very different, right. It's not that you are sitting, waiting to see some piece of entertainment, that's an always-on type of "entertainment gaming side." Their people have tremendous affinity for. They relate to these characters and play with them in their own world, and out of the gate we were very pleased with Animal Crossing and certainly expect that that will have a long tail as well. So, we're pleased for about both of these types of properties, and it's the balance of management of these of the spiky kinds of movies, their relationships with these franchise types of entertainment properties, as well as now the great what has turned into be long-term relationships with the gaming side, like the Pokemon that gives us balance across the licensing side that has aided us in being able to create a smoother curve and plan-out years in a better and more effective way. Now will Animal Crossing become a Pokemon? Pokemon has got multiple decades behind it, that certainly hard to say. But thus far, we're very pleased with it. Thank you for the question.
Eric Beder: Thank you and good luck for the rest of the year.
Operator: Our next question comes from David Cannon with Cannon Wealth Management. Please proceed.
David Cannon: Good morning, guys, congratulations.
Sharon Price John: Thanks, David.
Voin Todorovic: Good morning.
David Cannon: Also let me add, congratulations to some of your team members that I'm not meeting anyone on purpose. But I know Jenn and Chris are a big part of helping execute and I would just like to express my gratitude and acknowledgment of their efforts and doing a great job. All of you guys. So, first question, could you -- do you guys at this point have a specific initiative to go after the pet gifting market? Do you have dedicated product for that with a ruggedized or durable, shell sort of speak?
Sharon Price John: We certainly haven't announced anything like that or shared anything like that David. There is nothing in the public forum concerning that.
David Cannon: Okay. So my question is this some -- is this initiative that you're eyeballing and is in the works, rephrase it?
Sharon Price John: We haven't announced anything specific about any sort of strategic initiatives confirming pet products in the public forum.
David Cannon: Okay. And then, if I can -- I guess similar category would be non-fungible tokens NFP's right now a lot of buzz halo effect there. It seems like this is an opportunity for you guys evaluating it. This is something potentially that you will look to monetize.
Sharon Price John: Although we have not shared anything like that in the public forum as well. I was happy to tell you that we've spoken with some experts in the arena to assess the value of NFP's the way they operate and whether that makes sense for Build-A-Bear and Build-A-Bear a type of assets.
David Cannon: Okay. And then, can you give us an update on your 3D e-commerce initiatives?
Sharon Price John: As we shared in the January ICR , we have expectations to launch what we call the Bear builder 3D in 2021.
David Cannon: Okay. And then, this is quick questions here. So the next one is third party retail obviously with force closures and so forth, it could not have contributed much. Can you tell me what's your expectation in terms of the cadence of that ramping back up throughout the year? And I believe third party was like $2.5 million for the quarter, where do you see it ultimately settling when things go back to normal?
Sharon Price John: We normally provide specific projections on individual revenue generating areas but the third party retail is depending on the partner itself it's in different places and its evolution post-COVID. Great Wolf Lodge is already open and doing quite well, and of course as the complete opposite Carnival Cruise lines, they are still in the process of preparing their ships and I know that they have started to announce some expectations of when they will start going on cruises again and we would anticipate -- participating in those cruises when they do start to embark, so we're excited about that. And Voin if you'd like to add any color on that .
Voin Todorovic: David, this is one of those asset light initiatives that you know we are definitely very well aware of, and like we continue to work and try to find additional partners. But you know again with COVID delays and impact, some of these things have slowed down, but definitely, this is one of our high priorities for the organization.
David Cannon: Okay. I guess the way I'm looking at it is, even though the quarter was phenomenal, it was really with very little contribution from third party retail with $2.5 million. What was your peak -- what I'm driving at is it -- this is going to be incremental as we work through the year and into next year as things go back to normal. And also, what were your peak quarterly revenues in third party retail prior to the pandemic?
Voin Todorovic: I mean, it's little a bit hard to answer your question because you know, like really when you initiate some of those relationships and you have some of the initial orders and shipments and you're rolling things out, there are some spikes that we are seeing definitely on a full year basis in the past we have seen like that. That business was pretty big information available publicly. We believe with some of those things as things return back to normal and -- Like Carnival Cruise, that is a big portion of our lineup of third party retail locations reopens and assuming they have the same number of ships sailing that we are going to be able to get back to some of those numbers that we had shared historically. But, and again it just going to depend on some of these partners and how well their business is, as a lot of them are in tourist locations. And so this is where unfortunately the COVID is impacting not as directly but indirectly to some of these partners. And as I mentioned, we are going to continue to look at ways to grow this channel through different partners but again there is nothing more that I can share at this point in time.
David Cannon: Okay. I'll go back and I'll research it what your peak was. The final item on my list here, it's more of a comment for the board, even though our stock has gone up quite a bit when I assume in $11 stock price and then back out the cash and using 31 million of EBITDA, we're trading it like 4.25 times EV-to-EBITDA CapEx is coming down, we're positioned to generate very substantial free cash flow. To me, it makes sense to actually buy back our stock here and I know psychologically seeing it go from 3 to 11, one would have a knee-jerk reaction, and say, oh no, it's up a lot, but the valuation is so low and it would be so value accretive, so just a commentary for the board being that I think at this point we're somewhat overcapitalized and well-positioned. And frankly, I think your EBITDA guidance is very low, I think you're going to easily exceed it so. Anyway, again congratulations and thank you for your hard work, and look forward to next quarter.
Sharon Price John: Thank you, David.
Voin Todorovic: Thank you.
Operator: Thank you. At this time, I would like to turn the call back over to management for closing comments.
Sharon Price John: Thanks to everyone for joining us today. And we look forward to seeing some of you on Zoom during our meeting at the Cowen Conference later today and tomorrow during the fireside chat with D.A. Davidson. Have a great day.
Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.
